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

811-10555

 

PIMCO Corporate & Income Strategy Fund

(Exact name of registrant as specified in charter)

 

1633 Broadway, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip code)

 

Lawrence G. Altadonna - 1633 Broadway, New York, New York 10019

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

212-739-3371

 

 

Date of fiscal year end:

October 31, 2014

 

 

Date of reporting period:

April  30, 2014

 

 



 

Item 1. Report to Shareholders

 

 


 

Table of Contents

 

2–3

 

Letter from Chairman of the Board & President

4–5

 

Fund Insights

6–7

 

Performance & Statistics

8–46

 

Schedules of Investments

47

 

Statements of Assets and Liabilities

48

 

Statements of Operations

49–50

 

Statements of Changes in Net Assets

51

 

Statement of Cash Flows

52–74

 

Notes to Financial Statements

75–76

 

Financial Highlights

77

 

Annual Shareholder Meeting Results/Proxy Voting Policies & Procedures

78

 

Changes in Investment Policy/Corporate Change

79–87

 

Matters Relating to the Trustees’ Consideration of the Investment Management Agreement

 


 

Letter from Chairman of the Board & President

 

Dear Shareholder:

 

After three years of generally moderate growth, the US economy contracted toward the end of the six-month fiscal reporting period ended April 30, 2014. Despite this, US equities rallied sharply, while the US bond market was volatile and ultimately posted a modest gain.

 

For the six-month reporting period ended April 30, 2014:

 

n  PIMCO Corporate & Income Strategy Fund advanced 7.34% on net asset value (“NAV”) and 7.42% on market price.

 

n  PIMCO Income Opportunity Fund rose 5.32% on NAV and 6.52% on market price.

 

The economic expansion in the US economy continued, although severe winter weather in parts of the country appeared to have been a headwind as the reporting period progressed. Gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at a 2.6% annual pace during the fourth quarter of 2013. According to the US Commerce Department’s second estimate, GDP contracted at an annual pace of 1.0% during the first quarter of 2014.

 

The Federal Reserve (the “Fed”) maintained an accommodative monetary policy during the reporting period. However, at its meeting in December 2013, the central bank announced that it would begin tapering its monthly asset purchase program beginning in January 2014. At its meetings in January, March and April 2014, the Fed announced that it would further taper its asset purchases. However, the Fed repeated that it would not raise interest rates in the near future, saying in April that it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”

 

Outlook

 

The US economy has been resilient and, based on recent data, appears to have overcome the headwinds associated with higher taxes, rising interest rates and severe winter weather. We continue to expect US economic growth will be above-trend in 2014 due, in part, to the fact that

Hans W. Kertess

Chairman

 

Julian Sluyters

President & CEO

 

2 Semi-Annual Report | April 30, 2014

 


 

fiscal policy will be less of a drag than it was last year. While we are prepared for the Fed to start raising benchmark interest rates in 2015, we think policymakers will remain behind the curve on monetary normalization. Several factors support this view, including: the modest pace of the labor recovery, the lack of inflation pressure, the need to support the deleveraging process, the risk of a bond market crash if rates were to normalize too quickly, and constrained fiscal policy and political pressure.

Receive this report electronically and eliminate paper mailings.

 

 

To enroll, visit:

us.allianzgi.com/edelivery.

 

For specific information on the Funds and their performance, please review the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds’ shareholder servicing agent at (800) 254-5197. In addition, a wide range of information and resources is available on our website, us.allianzgi.com/closedendfunds.

 

Together with Allianz Global Investors Fund Management LLC, the Funds’ investment manager, and Pacific Investment Management Company LLC (“PIMCO”), the Funds’ sub-adviser, we thank you for investing with us.

 

We remain dedicated to serving your investment needs.

 

Sincerely,

 

 

 

Hans W. Kertess

Julian Sluyters

Chairman of the Board of Trustees

President & Chief Executive Officer

 

April 30, 2014 | Semi-Annual Report 3

 


 

Fund Insights

PIMCO Corporate & Income Strategy Fund

PIMCO Income Opportunity Fund

April 30, 2014 (unaudited)

 

For the six-months ended April 30, 2014, PIMCO Corporate & Income Strategy Fund returned 7.34% on net asset value (“NAV”) and 7.42% on market price.

 

For the six-months ended April 30, 2014, PIMCO Income Opportunity Fund returned 5.32% on NAV and 6.52% on market price.

 

The US fixed income market experienced periods of volatility during the six-month reporting period ended April 30, 2014. This was triggered by a number of factors, including mixed economic data, Fed asset purchase tapering and numerous geopolitical issues. All told, both short- and long-term Treasury yields rose during the reporting period. That being said, Treasury yields fell from their peak as the reporting period progressed. This occurred as investor risk aversion increased due to concerns about moderating global growth and uncertainties regarding the situation in Ukraine. The benchmark 10-year Treasury bond began the fiscal period yielding 2.57% and ended the period at 2.67%.

 

Compared to the 1.74% return for the overall US fixed income market (as measured by the Barclays US Aggregate Index), high yield and investment grade bonds returned 4.72% and

 

3.60%, respectively (as measured by the Barclays US High Yield and Barclays US Credit Indices) for the six-month fiscal period.

 

Lower rated, higher yielding investment grade corporate bonds generally outperformed higher quality corporate bonds. For instance, AAA-, AA-, A and BBB-rated issues, as measured by the Barclays US Credit Index, returned 0.97%, 2.75%, 3.31%, and 4.73%, respectively, during the six-months ended April 30, 2014. Within the high yield market, BB-rated issues returned 4.50%, versus 4.36% for B-rated securities, as measured by the Barclays US High Yield Index.

 

PIMCO Corporate & Income Strategy

 

Sector and duration positioning drive results

Overweighting the airline and wirelines sectors contributed to results, as these issues outperformed the credit market as measured by the Fund’s benchmark, the 80% Barclays Credit/20% BofA Merrill Lynch BB/B Constrained Index (the “Index”),1 during the reporting period. An underweighting to the banking sector was positive for performance as it lagged the Index during the fiscal six-month reporting period.

 

1. The Barclays US Credit Index consists of publicly issued US corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. It includes both corporate and non-corporate sectors. The corporate sectors are Industrial, Utility, and Finance, which include both US and non-US corporations. The non-corporate sectors are Sovereign, Supranational, Foreign Agency, and Foreign Local Government. The BofA Merrill Lynch BB/B Constrained Index tracks the performance of BB-B Rated US dollar-denominated corporate bonds publicly issued in the US domestic market. Qualifying bonds are capitalization-weighted provided the total allocation to an individual issuer (defined by Bloomberg tickers) does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis. Similarly, the face value of bonds of all other issuers that fall below the 2% cap are increased on a pro-rata basis. It is not possible to invest directly in an unmanaged index.

 

4 Semi-Annual Report | April 30, 2014


 

On the downside, the Fund’s duration positioning detracted from results, as the Fund was targeted to have a longer duration than that of the Index and rates moved higher during the fiscal reporting period. From a sector perspective, an underweighting to independent exploration and production energy companies was negative for performance as they outperformed the Index. An overweighting to the automotive sector was also not rewarded, as the sector underperformed the Index.

 

PIMCO Income Opportunity

 

Sector positioning and duration positioning drive results

The Fund’s allocation to the financial sector was beneficial for results during the reporting period, as it outperformed the board credit market. Within the sector, the Fund’s exposure

 

to bank capital was additive for its results. Within the consumer products and pipelines sectors, the Fund’s security selection was rewarded, as these securities generally outperformed the broad credit market during the reporting period. An allocation to non-agency mortgage-backed securities was additive for results, as this asset class generally outperformed the broader market. Elsewhere, the Fund’s allocation to US dollar-denominated emerging market debt contributed to performance, as the asset class outperformed the broad credit market during the reporting period.

 

On the downside, duration positioning detracted from results, as the Fund had a focus on the intermediate part of the yield curve. This was a negative for performance as yields in that portion of the curve moved higher during the fiscal reporting period.

 

April 30, 2014 | Semi-Annual Report 5

 


 

Performance & Statistics

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited)

 

Total Return(1):

 

Market Price

 

NAV

Six Month

 

  7.42%

 

 7.34%

1 Year

 

  4.00%

 

 9.79%

5 Year

 

27.03%

 

30.68%

10 Year

 

13.77%

 

12.77%

Commencement of Operations (12/21/01) to 4/30/14

 

12.48%

 

12.81%

 

Market Price/NAV Performance:

 

Market Price/NAV

Commencement of Operations (12/21/01) to 4/30/14

 

Market Price

 

$16.66

 

 

NAV

 

$15.50

 NAV

 

Premium to NAV

 

7.48%

 Market Price

 

Market Price Yield(2)

 

8.10%

 

 

Leverage Ratio(3)

 

22.13%

 

 

 

 

 

 

(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual total return.

 

Performance at market price will differ from results at NAV. Although market price returns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends.

 

An investment in the Fund involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

 

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at April 30, 2014.

 

(3) Represents Preferred Shares (“Leverage”) outstanding, as a percentage of total managed assets. Total managed assets refer to the total assets (including assets attributable to Leverage) minus liabilities (other than liabilities representing Leverage).

 

6 Semi-Annual Report | April 30, 2014


 

Performance & Statistics

PIMCO Income Opportunity Fund

April 30, 2014 (unaudited)

 

Total Return(1):

 

Market Price

 

NAV

Six Month

 

  6.52%

 

 5.32%

1 Year

 

 -1.29%

 

 6.07%

5 Year

 

25.22%

 

25.37%

Commencement of Operations (11/30/07) to 4/30/14

 

14.04%

 

14.68%

 

Market Price/NAV Performance:

 

Market Price/NAV:

Commencement of Operations (11/30/07) to 4/30/14

 

Market Price

 

$28.95

 

 

NAV

 

$28.40

 NAV

 

Premium to NAV

 

1.94%

 Market Price

 

Market Price Yield(2)

 

7.10%

 

 

Leverage Ratio(3)

 

37.85%

 

 

 

 

 

 

(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual total return.

 

Performance at market price will differ from results at NAV. Although market price returns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends.

 

An investment in the Fund involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

 

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per share (comprised of net investment income and short-term capital gains, if any) by the market price per share at April 30, 2014.

 

(3) Represents Reverse Repurchase Agreements (“Leverage”) outstanding, as a percentage of total managed assets. Total managed assets refer to the total assets (including assets attributable to Leverage) minus liabilities (other than liabilities representing Leverage).

 

April 30, 2014 | Semi-Annual Report 7

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

Mortgage-Backed Securities – 36.7%

 

 

 

$249

 

American Home Mortgage Assets Trust, 0.384%, 9/25/46, CMO (h)

 

$16,081

 

 

 

Banc of America Alternative Loan Trust, CMO,

 

 

 

8,995

 

5.50%, 10/25/35

 

8,219,023

 

246

 

6.00%, 1/25/36

 

198,613

 

 

 

Banc of America Funding Trust, CMO,

 

 

 

4,871

 

6.00%, 3/25/37

 

4,141,849

 

638

 

6.00%, 7/25/37

 

491,792

 

 

 

Banc of America Mortgage Trust, CMO,

 

 

 

4,700

 

5.50%, 11/25/35

 

4,576,623

 

1,065

 

6.00%, 3/25/37

 

1,009,645

 

388

 

6.50%, 9/25/33

 

401,878

 

 

 

BCAP LLC Trust, CMO (a)(c),

 

 

 

2,500

 

5.19%, 3/26/37 (h)

 

880,305

 

1,904

 

17.00%, 7/26/36

 

1,967,140

 

10,752

 

Bear Stearns Adjustable Rate Mortgage Trust, 2.732%, 8/25/35, CMO (h)

 

9,357,322

 

 

 

Bear Stearns ALT-A Trust, CMO (h),

 

 

 

2,420

 

2.601%, 11/25/36

 

1,702,821

 

1,502

 

2.71%, 8/25/36

 

1,132,124

 

1,516

 

2.748%, 9/25/35

 

1,242,591

 

2,675

 

Bear Stearns Mortgage Funding Trust, 7.00%, 8/25/36, CMO

 

2,204,838

 

 

 

Chase Mortgage Finance Trust, CMO,

 

 

 

21

 

2.527%, 12/25/35 (h)

 

19,739

 

1,743

 

6.00%, 7/25/37

 

1,515,687

 

2,833

 

Citicorp Mortgage Securities Trust, 6.00%, 6/25/36, CMO

 

2,961,508

 

 

 

Citigroup Mortgage Loan Trust, Inc., CMO (h),

 

 

 

1,561

 

5.249%, 8/25/35

 

1,545,731

 

641

 

5.455%, 4/25/37

 

566,907

 

7,912

 

5.687%, 9/25/37

 

6,526,563

 

 

 

CitiMortgage Alternative Loan Trust, CMO,

 

 

 

8,453

 

5.75%, 5/25/37

 

7,484,094

 

5,262

 

6.00%, 1/25/37

 

4,401,523

 

4,616

 

6.00%, 6/25/37

 

3,947,578

 

 

 

Countrywide Alternative Loan Trust, CMO,

 

 

 

647

 

5.50%, 3/25/35

 

576,254

 

296

 

5.50%, 3/25/36

 

238,451

 

3,657

 

5.50%, 5/25/36

 

2,820,776

 

812

 

5.75%, 1/25/35

 

820,796

 

958

 

5.75%, 2/25/35

 

924,494

 

1,509

 

5.75%, 3/25/37

 

1,260,031

 

1,991

 

6.00%, 2/25/35

 

2,095,655

 

10,150

 

6.00%, 4/25/36

 

9,023,634

 

9,795

 

6.00%, 2/25/37

 

7,645,100

 

2,348

 

6.00%, 4/25/37

 

1,964,840

 

3,439

 

6.00%, 5/25/37

 

2,755,434

 

813

 

6.00%, 7/25/37

 

772,450

 

 

8 Semi-Annual Report | April 30, 2014


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

$1,978

 

6.00%, 8/25/37

 

$1,564,531

 

2,610

 

6.25%, 12/25/36 (h)

 

2,186,803

 

912

 

6.50%, 8/25/36

 

677,095

 

 

 

Countrywide Home Loan Mortgage Pass-Through Trust, CMO,

 

 

 

538

 

2.55%, 9/20/36 (h)

 

395,118

 

1,064

 

5.50%, 10/25/35

 

1,030,125

 

1,648

 

5.75%, 3/25/37

 

1,494,765

 

1,061

 

6.00%, 2/25/37

 

995,252

 

1,011

 

6.00%, 3/25/37

 

926,223

 

320

 

6.00%, 4/25/37

 

293,960

 

9,914

 

6.00%, 7/25/37

 

8,341,964

 

 

 

Credit Suisse Mortgage Capital Certificates Mortgage-Backed Trust, CMO,

 

 

 

1,005

 

6.00%, 2/25/37

 

884,060

 

2,404

 

6.00%, 6/25/37

 

2,195,821

 

2,550

 

6.75%, 8/25/36

 

2,004,625

 

1,478

 

Deutsche ALT-B Securities Mortgage Loan Trust, 5.945%, 2/25/36, CMO

 

1,206,499

 

9,997

 

First Horizon Alternative Mortgage Securities Trust, 6.00%, 8/25/36, CMO

 

8,551,246

 

 

 

GSR Mortgage Loan Trust, CMO,

 

 

 

1,199

 

2.563%, 8/25/34 (h)

 

1,117,967

 

1,854

 

5.021%, 11/25/35 (h)

 

1,839,162

 

1,169

 

5.50%, 5/25/36

 

1,105,820

 

6,347

 

6.00%, 2/25/36

 

5,816,496

 

4,267

 

IndyMac IMSC Mortgage Loan Trust, 6.50%, 7/25/37, CMO

 

3,020,931

 

 

 

JPMorgan Alternative Loan Trust, CMO,

 

 

 

3,479

 

2.583%, 3/25/37 (h)

 

2,698,938

 

3,592

 

6.00%, 12/25/35

 

3,239,841

 

2,500

 

6.31%, 8/25/36

 

2,027,000

 

 

 

JPMorgan Mortgage Trust, CMO,

 

 

 

1,518

 

2.566%, 1/25/37 (h)

 

1,320,418

 

6,719

 

2.616%, 2/25/36 (h)

 

5,910,954

 

2,621

 

5.00%, 3/25/37

 

2,417,821

 

180

 

5.75%, 1/25/36

 

168,473

 

478

 

6.00%, 8/25/37

 

427,439

 

 

 

Lehman Mortgage Trust, CMO,

 

 

 

1,690

 

6.00%, 7/25/36

 

1,348,239

 

532

 

6.00%, 7/25/37

 

485,536

 

3,138

 

MASTR Alternative Loans Trust, 6.75%, 7/25/36, CMO

 

2,264,211

 

1,229

 

Merrill Lynch Mortgage Investors Trust, 2.774%, 3/25/36, CMO (h)

 

851,920

 

 

 

Morgan Stanley Mortgage Loan Trust, CMO,

 

 

 

4,753

 

4.971%, 5/25/36 (h)

 

3,798,906

 

3,920

 

6.00%, 2/25/36

 

3,884,045

 

7,820

 

New Century Alternative Mortgage Loan Trust, 6.173%, 7/25/36, CMO (h)

 

5,728,754

 

 

 

Residential Accredit Loans, Inc., CMO,

 

 

 

552

 

0.384%, 5/25/37 (h)

 

141,429

 

4,357

 

3.432%, 12/26/34 (h)

 

3,760,258

 

2,179

 

6.00%, 6/25/36

 

1,778,872

 

 

April 30, 2014 | Semi-Annual Report 9

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

$4,069

 

6.00%, 8/25/36

 

$3,289,617

 

3,472

 

6.00%, 9/25/36

 

2,517,989

 

4,379

 

6.00%, 12/25/36

 

3,445,426

 

1,481

 

Residential Asset Mortgage Products, Inc., 6.50%, 12/25/31, CMO

 

1,507,921

 

 

 

Residential Asset Securitization Trust, CMO,

 

 

 

2,838

 

5.078%, 6/25/46 (h)

 

2,070,673

 

1,201

 

6.00%, 2/25/36

 

985,576

 

793

 

6.00%, 9/25/36

 

537,744

 

3,936

 

6.00%, 11/25/36

 

2,992,116

 

2,481

 

6.00%, 3/25/37

 

1,981,245

 

3,421

 

6.00%, 5/25/37

 

3,075,183

 

3,759

 

6.25%, 9/25/37

 

2,609,831

 

 

 

Residential Funding Mortgage Securities I, CMO,

 

 

 

3,283

 

3.408%, 2/25/37 (h)

 

2,608,440

 

1,559

 

6.00%, 1/25/37

 

1,449,797

 

2,021

 

6.25%, 8/25/36

 

1,838,360

 

310

 

6.50%, 3/25/32

 

326,966

 

 

 

Sequoia Mortgage Trust, CMO (h),

 

 

 

734

 

2.382%, 2/20/47

 

636,846

 

1,498

 

5.119%, 7/20/37

 

1,357,452

 

 

 

Structured Adjustable Rate Mortgage Loan Trust, CMO (h),

 

 

 

5,175

 

2.47%, 11/25/36

 

4,166,377

 

7,383

 

4.925%, 3/25/37

 

5,537,072

 

4,587

 

5.029%, 5/25/36

 

3,869,395

 

4,240

 

5.05%, 1/25/36

 

3,279,118

 

2,174

 

5.177%, 7/25/35

 

1,909,613

 

1,586

 

5.319%, 7/25/36

 

1,480,876

 

9,301

 

5.36%, 7/25/36

 

6,447,236

 

 

 

Suntrust Adjustable Rate Mortgage Loan Trust, CMO (h),

 

 

 

771

 

2.756%, 2/25/37

 

659,579

 

1,404

 

2.852%, 4/25/37

 

1,193,137

 

8,932

 

WaMu Commercial Mortgage Securities Trust, 5.336%, 3/23/45, CMO (a)(c)(h)

 

9,231,313

 

 

 

WaMu Mortgage Pass-Through Certificates, CMO (h),

 

 

 

857

 

2.255%, 7/25/37

 

723,970

 

587

 

2.355%, 9/25/36

 

525,044

 

848

 

2.451%, 2/25/37

 

749,548

 

179

 

2.466%, 3/25/37

 

168,635

 

1,377

 

4.686%, 2/25/37

 

1,282,024

 

2,366

 

4.73%, 7/25/37

 

2,191,642

 

4,829

 

6.09%, 10/25/36

 

4,051,396

 

 

 

Washington Mutual Mortgage Pass-Through Certificates, CMO,

 

 

 

156

 

0.893%, 4/25/47 (h)

 

9,875

 

731

 

0.969%, 5/25/47 (h)

 

74,777

 

3,550

 

6.00%, 10/25/35

 

2,719,825

 

1,577

 

Wells Fargo Alternative Loan Trust, 6.00%, 7/25/37, CMO

 

1,432,699

 

 

10 Semi-Annual Report | April 30, 2014

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

 

 

Wells Fargo Mortgage-Backed Securities Trust, CMO,

 

 

 

$942

 

2.61%, 7/25/36 (h)

 

$867,108

 

178

 

2.614%, 5/25/36 (h)

 

166,446

 

443

 

2.616%, 4/25/36 (h)

 

425,946

 

7,816

 

2.616%, 8/25/36 (h)

 

7,432,796

 

1,007

 

5.629%, 10/25/36 (h)

 

985,832

 

998

 

6.00%, 7/25/37

 

972,327

 

Total Mortgage-Backed Securities (cost-$266,050,424)

 

281,096,195

 

Municipal Bonds – 21.7%

 

 

 

 

 

California – 7.2%

 

 

 

4,200

 

City & Cnty. of San Francisco, Capital Improvement Projects, CP,
6.487%, 11/1/41, Ser. D

 

4,911,732

 

12,300

 

Infrastructure & Economic Dev. Bank Rev., 6.486%, 5/15/49

 

15,137,487

 

1,800

 

Long Beach Redev. Agcy., Tax Allocation, 8.36%, 8/1/40

 

1,908,702

 

20,300

 

Los Angeles Department of Water & Power Rev., 6.166%, 7/1/40

 

22,255,905

 

1,220

 

Riverside Cnty. Economic Dev. Agcy., Tax Allocation, 7.75%, 10/1/37, Ser. A-T

 

1,300,191

 

2,000

 

State Univ. Rev., 6.484%, 11/1/41

 

2,470,880

 

7,400

 

Stockton Public Financing Auth. Rev., 7.942%, 10/1/38, Ser. B

 

7,570,940

 

 

 

 

 

55,555,837

 

 

 

Georgia – 1.3%

 

 

 

8,300

 

Municipal Electric Auth. of Georgia Rev., 6.655%, 4/1/57

 

9,607,831

 

 

 

Illinois – 5.3%

 

 

 

12,700

 

Chicago, GO, 7.517%, 1/1/40, Ser. B

 

14,958,060

 

23,200

 

Municipal Electric Agcy. Rev., 6.832%, 2/1/35

 

25,788,424

 

 

 

 

 

40,746,484

 

 

 

Louisiana – 0.2%

 

 

 

 

 

New Orleans, Public Improvements, GO, Ser. A,

 

 

 

800

 

8.30%, 12/1/29

 

944,216

 

820

 

8.55%, 12/1/34

 

968,518

 

 

 

 

 

1,912,734

 

 

 

Nebraska – 2.0%

 

 

 

14,000

 

Public Power Generation Agcy. Rev., 7.242%, 1/1/41

 

15,550,080

 

 

 

Nevada – 1.5%

 

 

 

10,485

 

Las Vegas Valley Water Dist., GO, 5.65%, 3/1/35, Ser. A

 

11,566,213

 

 

 

New Jersey – 0.1%

 

 

 

500

 

Tobacco Settlement Financing Corp. Rev., 5.00%, 6/1/41, Ser. 1-A

 

395,980

 

 

 

Ohio – 2.0%

 

 

 

10,300

 

American Municipal Power, Inc. Rev., Comb Hydroelectric Projects,
8.084%, 2/15/50, Ser. B

 

15,205,993

 

 

 

Texas – 2.1%

 

 

 

12,800

 

Dallas Convention Center Hotel Dev. Corp. Rev., 7.088%, 1/1/42

 

15,761,280

 

Total Municipal Bonds (cost-$151,665,707)

 

166,302,432

 

 

April 30, 2014 | Semi-Annual Report 11


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

Corporate Bonds & Notes – 18.9%

 

 

 

 

 

Airlines – 0.7%

 

 

 

$1,493

 

Continental Airlines Pass-Through Trust, 9.798%, 10/1/22

 

$1,716,678

 

3,099

 

United Air Lines Pass-Through Trust, 10.40%, 5/1/18

 

3,529,190

 

 

 

 

 

5,245,868

 

 

 

Auto Manufacturers – 1.2%

 

 

 

 

 

Ford Motor Co.,

 

 

 

5,700

 

7.70%, 5/15/97

 

6,691,087

 

1,500

 

9.98%, 2/15/47

 

2,268,588

 

 

 

 

 

8,959,675

 

 

 

Banking – 7.1%

 

 

 

2,000

 

Ally Financial, Inc., 8.30%, 2/12/15

 

2,112,500

 

1,750

 

Citigroup, Inc., 6.125%, 8/25/36

 

1,958,432

 

 

 

LBG Capital No. 1 PLC,

 

 

 

€300

 

7.375%, 3/12/20

 

452,560

 

$3,120

 

8.00%, 6/15/20 (a)(c)(d)

 

3,397,680

 

8,500

 

8.50%, 12/17/21 (a)(c)(d)

 

9,238,123

 

 

 

LBG Capital No. 2 PLC,

 

 

 

€400

 

8.875%, 2/7/20

 

627,859

 

£3,100

 

9.125%, 7/15/20

 

5,479,933

 

 

 

Lloyds Bank PLC (d),

 

 

 

$4,949

 

7.50%, 6/27/24

 

5,184,077

 

2,600

 

12.00%, 12/16/24 (a)(b)(c)(f)
(acquisition cost-$3,484,000; purchased 9/18/13)

 

3,705,000

 

3,600

 

Royal Bank of Scotland Group PLC, 7.648%, 9/30/31 (d)

 

3,978,000

 

19,100

 

Wachovia Capital Trust III, 5.57%, 5/1/14 (d)

 

18,479,250

 

 

 

 

 

54,613,414

 

 

 

Diversified Financial Services – 5.3%

 

 

 

2,300

 

AGFC Capital Trust I, 6.00%, 1/15/67 (converts to FRN on 1/15/17) (a)(c)

 

1,955,000

 

7,200

 

Army Hawaii Family Housing Trust Certificates, 5.524%, 6/15/50 (NPFGC) (a)(b)(c)(f)
(acquisition cost-$7,128,000; purchased 11/18/13)

 

7,455,744

 

23,364

 

Ford Motor Credit Co. LLC, 3.875%, 1/15/15

 

23,907,470

 

1,900

 

General Electric Capital Corp., 6.375%, 11/15/67
(converts to FRN on 11/15/17)

 

2,118,500

 

5,094

 

GSPA Monetization Trust, 6.422%, 10/9/29 (a)(b)(c)(f)
(acquisition cost-$5,032,993; purchased 9/23/13)

 

5,197,517

 

 

 

 

 

40,634,231

 

 

 

Electric Utilities – 0.4%

 

 

 

2,526

 

Bruce Mansfield Unit, 6.85%, 6/1/34

 

2,747,564

 

632

 

FPL Energy Wind Funding LLC, 6.876%, 6/27/17 (a)(b)(c)(f)
(acquisition cost-$647,513; purchased 8/25/04)

 

620,665

 

 

 

 

 

3,368,229

 

 

12 Semi-Annual Report | April 30, 2014

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

 

 

Insurance – 0.8%

 

 

 

$3,400

 

AIG Life Holdings, Inc., 7.57%, 12/1/45 (a)(b)(c)(f)
(acquisition cost-$3,885,360; purchased 7/26/11-1/23/13)

 

$4,300,354

 

1,400

 

American International Group, Inc., 8.175%, 5/15/68
(converts to FRN on 5/15/38)

 

1,879,500

 

 

 

 

 

6,179,854

 

 

 

Lodging – 0.4%

 

 

 

2,026

 

Times Square Hotel Trust, 8.528%, 8/1/26 (a)(c)

 

2,639,706

 

 

 

Miscellaneous Manufacturing – 0.3%

 

 

 

2,300

 

Bombardier, Inc., 4.25%, 1/15/16 (a)(c)

 

2,400,625

 

 

 

Oil & Gas – 0.5%

 

 

 

3,460

 

Anadarko Petroleum Corp., 7.00%, 11/15/27

 

3,994,387

 

 

 

Pipelines – 0.3%

 

 

 

2,500

 

Enterprise Products Operating LLC, 5.60%, 10/15/14

 

2,556,305

 

 

 

Telecommunications – 1.9%

 

 

 

8,200

 

Mountain States Telephone & Telegraph Co., 7.375%, 5/1/30

 

9,094,328

 

5,360

 

Qwest Corp., 7.20%, 11/10/26

 

5,413,830

 

 

 

 

 

14,508,158

 

Total Corporate Bonds & Notes (cost-$129,938,437)

 

145,100,452

 

U.S. Government Agency Securities – 6.5%

 

 

 

 

 

Fannie Mae, CMO, IO,

 

 

 

85,855

 

3.00%, 2/25/43

 

16,528,132

 

22,627

 

3.50%, 3/25/42-2/25/43

 

4,249,117

 

3,288

 

6.446%, 4/25/41 (h)

 

633,292

 

 

 

Freddie Mac, CMO, IO,

 

 

 

76,740

 

3.00%, 2/15/33-12/15/42

 

13,381,433

 

6,571

 

3.50%, 9/15/42

 

1,176,140

 

8,582

 

4.50%, 10/15/42

 

1,547,065

 

4,678

 

5.845%, 8/15/42 (h)

 

934,418

 

 

 

Ginnie Mae, CMO,

 

 

 

10,708

 

4.00%, 5/16/42-8/16/42, IO

 

2,052,600

 

8,200

 

8.591%, 8/20/39 (b)(h)

 

9,139,262

 

Total U.S. Government Agency Securities (cost-$47,309,691)

 

49,641,459

 

Asset-Backed Securities – 4.5%

 

 

 

437

 

Bear Stearns Asset-Backed Securities Trust, 6.50%, 10/25/36

 

373,660

 

 

 

Countrywide Asset-Backed Certificates (h),

 

 

 

10,598

 

5.357%, 10/25/46

 

9,135,471

 

3,242

 

5.378%, 7/25/36

 

3,216,009

 

1,992

 

Greenpoint Manufactured Housing, 8.14%, 3/20/30 (h)

 

2,049,431

 

1,970

 

GSAA Home Equity Trust, 6.295%, 6/25/36

 

1,149,622

 

13,291

 

IndyMac Residential Asset-Backed Trust, 0.314%, 7/25/37 (h)

 

8,279,684

 

8,381

 

JP Morgan Mortgage Acquisition Trust, 4.852%, 1/25/37

 

5,933,450

 

2,117

 

Mid-State Trust IV, 8.33%, 4/1/30

 

2,182,987

 

1,498

 

Mid-State Trust VII, 6.34%, 10/15/36

 

1,585,994

 

 

April 30, 2014 | Semi-Annual Report 13

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

$1,125

 

Morgan Stanley Mortgage Loan Trust, 6.25%, 7/25/47 (h)

 

$858,069

 

Total Asset-Backed Securities (cost-$34,750,649)

 

34,764,377

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Preferred Stock – 0.4%

 

 

 

 

 

Diversified Financial Services – 0.4%

 

 

 

120,000

 

Citigroup Capital XIII, 7.875%, 10/30/15 (g) (cost-$3,428,400)

 

3,271,200

 

 

 

 

 

 

 

Principal
Amount
(000s)

 

 

 

 

 

Short-Term Investments – 11.3%

 

 

 

 

 

Repurchase Agreements – 11.2%

 

 

 

$12,500

 

Banc of America Securities LLC,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $12,500,021; collateralized by U.S. Treasury Notes, 1.625%, due 4/30/19, valued at $12,759,520 including accrued interest

 

12,500,000

 

12,000

 

Barclays Capital, Inc.,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $12,000,020; collateralized by U.S. Treasury Notes, 0.375%, due 4/30/16, valued at $12,242,909 including accrued interest

 

12,000,000

 

8,300

 

Citigroup Global Markets, Inc.,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $8,300,014; collateralized by U.S. Treasury Notes, 0.875%, due 2/28/17, valued at $8,479,289 including accrued interest

 

8,300,000

 

7,600

 

Credit Suisse Securities (USA) LLC,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $7,600,013; collateralized by U.S. Treasury Notes, 0.25%, due 8/31/14, valued at $7,757,564 including accrued interest

 

7,600,000

 

7,800

 

Deutsche Bank Securities, Inc.,
dated 4/30/14, 0.05%, due 5/1/14, proceeds $7,800,011; collateralized by U.S. Treasury Notes, 1.00%, due 9/30/19, valued at $7,966,362 including accrued interest

 

7,800,000

 

8,200

 

JPMorgan Chase,
dated 4/30/14, 0.07%, due 5/1/14, proceeds $8,200,016; collateralized by Freddie Mac, 2.255%, due 12/5/22, valued at $8,402,226 including accrued interest

 

8,200,000

 

 

14 Semi-Annual Report | April 30, 2014


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

 

 

Repurchase Agreements (continued)

 

 

 

$11,100

 

Morgan Stanley & Co., Inc.,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $11,100,019; collateralized by U.S. Treasury Notes, 2.50%, due 4/30/15, valued at $11,471,011 including accrued interest

 

$11,100,000

 

2,252

 

State Street Bank and Trust Co.,
dated 4/30/14, 0.00%, due 5/1/14, proceeds $2,252,000; collateralized by Fannie Mae, 2.20%, due 10/17/22, valued at $2,298,685 including accrued interest

 

2,252,000

 

16,200

 

TD Securities (USA) LLC,
dated 4/30/14, 0.06%, due 5/1/14, proceeds $16,200,027; collateralized by U.S. Treasury Notes, 1.00%, due 5/31/18, valued at $16,626,033 including accrued interest

 

16,200,000

 

Total Repurchase Agreements (cost-$85,952,000)

 

85,952,000

 

 

 

U.S. Treasury Obligations (e)(i) – 0.1%

 

 

 

457

 

U.S. Treasury Bills, 0.073%-0.081%, 8/21/14-9/4/14 (cost-$456,892)

 

456,962

 

Total Short-Term Investments (cost-$86,408,892)

 

86,408,962

 

Total Investments (cost-$719,552,200) – 100.0%

 

$766,585,077

 

 

Notes to Schedule of Investments:

 

(a)

Private Placement–Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $52,989,172, representing 6.9% of total investments.

 

 

(b)

Illiquid.

 

 

(c)

144A–Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.

 

 

(d)

Perpetual maturity. The date shown, if any, is the next call date. For Corporate Bonds & Notes the interest rate is fixed until the first call date and variable thereafter.

 

 

(e)

All or partial amount segregated for the benefit of the counterparty as collateral for derivatives.

 

 

(f)

Restricted. The aggregate acquisition cost of such securities is $20,177,866. The aggregate value is $21,279,280, representing 2.8% of total investments.

 

 

(g)

Dividend rate is fixed until the first call date and variable thereafter.

 

 

(h)

Variable or Floating Rate Security–Securities with an interest rate that changes periodically. The interest rate disclosed reflects the rate in effect on April 30, 2014.

 

 

(i)

Rates reflect the effective yields at purchase date.

 

April 30, 2014 | Semi-Annual Report 15

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

 

(j)  Interest rate swap agreements outstanding at April 30, 2014:

 

OTC swap agreements:

 

 

 

 

 

 

 

Rate Type

 

 

 

 

 

 

 

Swap
Counterparty

 

Notional
Amount
(000s)

 

Termination
Date

 

Payments
Made

 

Payments
Received

 

Value

 

Upfront
Premiums
Paid

 

Unrealized
Appreciation

Bank of America

 

$620,100

 

7/15/19

 

3-Month USD-LIBOR

 

2.10%

 

$1,178,648

 

 

$366,355

 

 

$812,293

 

 

Nomura Global Financial Products, Inc.

 

620,000

 

7/15/19

 

3-Month USD-LIBOR

 

2.10%

 

1,178,458

 

 

542,015

 

 

636,443

 

 

 

 

 

 

 

 

 

 

 

 

$2,357,106

 

 

$908,370

 

 

$1,448,736

 

 

 

Centrally cleared swap agreements:

 

 

 

 

 

 

 

Rate Type

 

 

 

Broker (Exchange)

 

Notional
Amount
(000s)

 

Termination
Date

 

Payments
Made

 

Payments
Received

 

Value

Unrealized
Appreciation
(Depreciation)

Goldman Sachs (CME)

 

$66,600

 

 

6/18/44

 

3.50%

 

3-Month USD-LIBOR

 

$(394,091

)

 

$(3,964,242

)

Morgan Stanley (CME)

 

209,000

 

 

6/18/43

 

3.75%

 

3-Month USD-LIBOR

 

(11,489,648

)

 

(12,357,321

)

Morgan Stanley (CME)

 

209,000

 

 

6/19/44

 

3-Month - USD LIBOR

 

3.50%

 

4,749,767

 

 

11,567,894

 

 

 

 

 

 

 

 

 

 

 

 

$(7,133,972

)

 

$(4,753,669

)

 

(k)  Forward foreign currency contracts outstanding at April 30, 2014:

 

 

 

Counterparty

 

U.S.$ Value on
Origination Date

 

U.S.$ Value
April 30, 2014

 

Unrealized
Appreciation
(Depreciation)

Purchased:

 

 

 

 

 

 

 

 

 

 

755,580 Brazilian Real settling 5/5/14

 

Goldman Sachs

 

$337,916

 

 

$338,863

 

 

 

$947

 

755,580 Brazilian Real settling 5/5/14

 

UBS

 

339,739

 

 

338,863

 

 

 

(876

)

3,340,000 British Pound settling 5/2/14

 

JPMorgan Chase

 

5,606,190

 

 

5,639,253

 

 

 

33,063

 

327,000 Canadian Dollar settling 6/19/14

 

Citigroup

 

294,587

 

 

298,001

 

 

 

3,414

 

761,000 Euro settling 5/2/14

 

Bank of America

 

1,052,927

 

 

1,055,773

 

 

 

2,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold:

 

 

 

 

 

 

 

 

 

 

 

 

755,580 Brazilian Real settling 5/5/14

 

Goldman Sachs

 

341,300

 

 

338,863

 

 

 

2,437

 

755,580 Brazilian Real settling 5/5/14

 

UBS

 

337,916

 

 

338,863

 

 

 

(947

)

755,580 Brazilian Real settling 6/3/14

 

UBS

 

336,952

 

 

335,785

 

 

 

1,167

 

3,340,000 British Pound settling 6/3/14

 

JPMorgan Chase

 

5,604,823

 

 

5,637,840

 

 

 

(33,017

)

3,340,000 British Pound settling 5/2/14

 

Royal Bank of Scotland

 

5,502,436

 

 

5,639,253

 

 

 

(136,817

)

761,000 Euro settling 6/3/14

 

Bank of America

 

1,052,844

 

 

1,055,702

 

 

 

(2,858

)

761,000 Euro settling 5/2/14

 

Royal Bank of Scotland

 

1,048,376

 

 

1,055,773

 

 

 

(7,397

)

 

 

 

 

 

 

 

 

 

 

 

$(138,038

)

 

16  Semi-Annual Report | April 30, 2014

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

 

(l)

At April 30, 2014, the Fund held $12,865,000 in cash as collateral and pledged cash collateral of $4,855,000 for derivative contracts. Cash collateral held may be invested in accordance with the Fund’s investment strategy.

(m)

Fair Value Measurements-See Note 1(b) in the Notes to Financial Statements.

 

 

 

Level 1 –
Quoted Prices

 

Level 2 –
Other Significant
Observable
Inputs

 

Level 3 –
Significant
Unobservable
Inputs

 

Value at
4/30/14

Investments in Securities – Assets

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities

 

$–

 

 

$281,096,195

 

 

$–

 

 

$281,096,195

 

Municipal Bonds

 

 

 

166,302,432

 

 

 

 

166,302,432

 

Corporate Bonds & Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Airlines

 

 

 

 

 

5,245,868

 

 

5,245,868

 

Diversified Financial Services

 

 

 

35,436,714

 

 

5,197,517

 

 

40,634,231

 

All Other

 

 

 

99,220,353

 

 

 

 

99,220,353

 

U.S. Government Agency Securities

 

 

 

49,641,459

 

 

 

 

49,641,459

 

Asset-Backed Securities

 

 

 

34,764,377

 

 

 

 

34,764,377

 

Preferred Stock

 

3,271,200

 

 

 

 

 

 

3,271,200

 

Short-Term Investments

 

 

 

86,408,962

 

 

 

 

86,408,962

 

 

 

3,271,200

 

 

752,870,492

 

 

10,443,385

 

 

766,585,077

 

Other Financial Instruments* – Assets

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

 

 

43,874

 

 

 

 

43,874

 

Interest Rate Contracts

 

 

 

13,016,630

 

 

 

 

13,016,630

 

 

 

 

 

13,060,504

 

 

 

 

13,060,504

 

Other Financial Instruments* – Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

 

 

(181,912

)

 

 

 

(181,912

)

Interest Rate Contracts

 

 

 

(16,321,563

)

 

 

 

(16,321,563

)

 

 

 

 

(16,503,475

)

 

 

 

(16,503,475

)

Totals

 

$3,271,200

 

 

$749,427,521

 

 

$10,443,385

 

 

$763,142,106

 

 

At April 30, 2014, there were no transfers between Levels 1 and 2.

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the six months ended April 30, 2014, was as follows:

 

 

 

Beginning
Balance
10/31/13

 

Purchases

 

Sales

 

Accrued
Discount
(Premiums)

 

Net
Realized
Gain
(Loss)

 

Net Change
in Unrealized
Appreciation/
Depreciation

 

 

Transfers
into
Level 3

 

Transfers
out of
Level 3

 

Ending
Balance
4/30/14

Investments in Securities – Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Bonds & Notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airlines

 

$5,905,974

 

 

$(655,653

)

 

$(23,487

)

 

$(44,461

)

$63,495

 

 

 

 

$5,245,868

Diversified Financial Services

 

5,103,819

 

 

(48,261

)

 

1,102

 

 

567

 

140,290

 

 

 

 

5,197,517

Electric Utilities

 

106,885

 

 

(75,250

)

 

 

 

(1,689,215

)

1,657,580

 

 

 

 

Totals

 

$11,116,678

 

 

$(779,164

)

 

$(22,385

)

 

$(1,733,109

)

$1,861,365

 

 

 

 

$10,443,385

 

April 30, 2014 | Semi-Annual Report  17

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

 

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at April 30, 2014.

 

 

 

Ending Balance
at 4/30/14

 

Valuation
Technique Used

 

Unobservable
Inputs

 

Input
Values

Investments in Securities – Assets

 

 

 

 

 

 

Corporate Bonds & Notes

 

$10,443,385

 

Third-Party Pricing Vendor

 

Single Broker Quote

 

$102.04 – $115.00

 

*      Other financial instruments are derivatives, such as swap agreements and forward foreign currency contracts, which are valued at the unrealized appreciation (depreciation) of the instrument.

 

The net change in unrealized appreciation/depreciation of Level 3 investments held at April 30, 2014, was $221,121. Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statement of Operations.

 

(n)  The following is a summary of the derivative instruments categorized by risk exposure:

 

The effect of derivatives on the Statement of Assets and Liabilities at April 30, 2014:

 

Location

 

Interest
Rate
Contracts

 

Foreign
Exchange
Contracts

 

Total

Asset derivatives:

 

 

 

 

 

 

 

Unrealized appreciation of OTC swaps

 

$1,448,736

 

 

$–

 

 

$1,448,736

 

Unrealized appreciation of forward foreign currency contracts

 

 

 

43,874

 

 

43,874

 

Total asset derivatives

 

$1,448,736

 

 

$43,874

 

 

$1,492,610

 

Liability derivatives:

 

 

 

 

 

 

 

 

 

Payable for variation margin on centrally cleared swaps*

 

$(430,181

)

 

$–

 

 

$(430,181

)

Unrealized depreciation of forward foreign currency contracts

 

 

 

(181,912

)

 

(181,912

)

Total liability derivatives

 

$(430,181

)

 

$(181,912

)

 

$(612,093

)

 

*      Included in net unrealized depreciation of $4,753,669 on centrally cleared swaps as reported in note (j) of the Notes to Schedule of Investments.

 

The effect of derivatives on the Statement of Operations for the six months ended April 30, 2014:

 

Location

 

Interest
Rate
Contracts

 

Foreign
Exchange
Contracts

 

Total

Net realized gain (loss) on:

 

 

 

 

 

 

Swaps

 

$8,605,817

 

 

$–

 

 

$8,605,817

 

Foreign currency transactions (forward foreign currency contracts)

 

 

 

(3,082,482

)

 

(3,082,482

)

Total net realized gain (loss)

 

$8,605,817

 

 

$(3,082,482

)

 

$5,523,335

 

Net change in unrealized appreciation/depreciation of:

 

 

 

 

 

 

 

 

 

Swaps

 

$(12,359,322

)

 

$–

 

 

$(12,359,322

)

Foreign currency transactions (forward foreign currency contracts)

 

 

 

1,627,073

 

 

1,627,073

 

Total net change in unrealized appreciation/depreciation

 

$(12,359,322

)

 

$1,627,073

 

 

$(10,732,249

)

 

18  Semi-Annual Report | April 30, 2014

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

 

The average volume (measured at each fiscal quarter-end) of derivative activity during the six months ended April 30, 2014:

 

 

Forward Foreign
Currency Contracts 
(1)

 

Interest Rate

 

 

Purchased

 

Sold

 

Swap Agreements (2)

 

 

$63,343,333

 

$82,389,254

 

$1,284,800

 

 

(1)  U.S. $ Value on origination date

(2)  Notional Amount (in thousands)

 

The following tables present by counterparty, the Fund’s derivative assets and liabilities net of related collateral held by the Fund at April 30, 2014 which has not been offset in the Statement of Assets and Liabilities, but would be available for offset to the extent of a default by the counterparty to the transaction.

 

Financial Assets and Derivative Assets, and Collateral Received at April 30, 2014:

 

Gross Amounts Not Offset in the Statement of Assets and Liabilities

Counterparty

 

Gross
Asset Derivatives
Presented in
Statement of
Assets and Liabilities

 

Financial
Instrument/
Derivative
Offset

 

Cash
Collateral
Paid (Received)

 

Net Amount

Foreign Currency Exchange Contracts

 

 

 

 

 

 

 

 

Bank of America

 

$2,846

 

 

$(2,846

)

 

$–

 

 

$–

 

Goldman Sachs

 

3,384

 

 

 

 

 

 

3,384

 

Citigroup

 

3,414

 

 

 

 

 

 

3,414

 

JPMorgan Chase

 

33,063

 

 

(33,017

)

 

 

 

46

 

UBS

 

1,167

 

 

(1,167

)

 

 

 

 

Swaps

 

 

 

 

 

 

 

 

 

 

 

 

Bank of America

 

812,293

 

 

(12

)

 

(693,645

)†, #

 

118,636

 

Nomura Global Financial Products, Inc.

 

636,443

 

 

 

 

542,015

#

 

1,178,458

 

Totals

 

$1,492,610

 

 

$(37,042

)

 

$(151,630

)

 

$1,303,938

 

 

Gross Amounts Not Offset in the Statement of Assets and Liabilities

Counterparty

 

Gross
Financial Assets
Presented in
Statement of
Assets and Liabilities

 

Financial
Instrument/
Derivative
Offset

 

Net Amount

Repurchase Agreements

 

 

 

 

 

 

Bank of America

 

$12,500,000

 

 

$(12,500,000

)†

Barclays Bank

 

12,000,000

 

 

(12,000,000

)†

Citigroup

 

8,300,000

 

 

(8,300,000

)†

Credit Suisse First Boston

 

7,600,000

 

 

(7,600,000

)†

Deutsche Bank

 

7,800,000

 

 

(7,800,000

)†

JPMorgan Chase

 

8,200,000

 

 

(8,200,000

)†

Morgan Stanley

 

11,100,000

 

 

(11,100,000

)†

State Street Bank & Trust Co.

 

2,252,000

 

 

(2,252,000

)†

TD Securities (USA) LLC

 

16,200,000

 

 

(16,200,000

)†

Totals

 

$85,952,000

 

 

$(85,952,000

)

 

April 30, 2014 | Semi-Annual Report  19

 


 

Schedule of Investments

PIMCO Corporate & Income Strategy Fund

April 30, 2014 (unaudited) (continued)

 

 

 

Financial Liabilities and Derivative Liabilities, and Collateral Pledged at April 30, 2014:

 

Gross Amounts Not Offset in the Statement of Assets and Liabilities

Counterparty

 

Gross
Liability Derivatives
Presented in
Statement of
Assets and Liabilities

 

Financial
Instrument/
Derivative
Offset

 

Cash
Collateral
Received
(Pledged)

 

Net Amount

Foreign Currency Exchange Contracts

 

 

 

 

 

 

 

 

Bank of America

 

$2,858

 

 

$(2,858

)

 

 

$–

 

JPMorgan Chase

 

33,017

 

 

(33,017

)

 

 

 

Royal Bank of Scotland

 

144,214

 

 

 

 

 

144,214

 

UBS

 

1,823

 

 

(1,167

)

 

 

656

 

Totals

 

$181,912

 

 

$(37,042

)

 

 

$144,870

 

 

†  The actual collateral received is greater than the amount shown here due to over collateralization.

#  The amount includes upfront premiums Paid.

 

Glossary:

 

£

-

British Pound

CME

-

Chicago Mercantile Exchange

CMO

-

Collateralized Mortgage Obligation

CP

-

Certificates of Participation

-

Euro

FRN

-

Floating Rate Note

GO

-

General Obligation Bond

IO

-

Interest Only

LIBOR

-

London Inter-Bank Offered Rate

NPFGC

-

insured by National Public Finance Guarantee Corp.

OTC

-

Over-the-Counter

 

20  Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements

 


 

Schedule of Investments

PIMCO Income Opportunity Fund

April 30, 2014 (unaudited)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

Corporate Bonds & Notes – 53.6%

 

 

 

 

 

Airlines – 2.9%

 

 

 

 

 

Continental Airlines Pass-Through Trust (k),

 

 

 

$1,039

 

7.707%, 10/2/22

 

$1,178,812

 

1,026

 

8.048%, 5/1/22

 

1,180,999

 

1,326

 

Delta Air Lines, Inc., 7.75%, 6/17/21 (k)

 

1,550,029

 

4,391

 

Intrepid Aviation Group Holdings LLC, 6.875%, 2/15/19 (a)(d)

 

4,566,640

 

 

 

United Air Lines Pass-Through Trust (k),

 

 

 

1,803

 

9.75%, 7/15/18

 

2,073,364

 

1,388

 

10.40%, 5/1/18

 

1,580,234

 

 

 

 

 

12,130,078

 

 

 

Auto Components – 0.8%

 

 

 

€100

 

Autodis S.A., 6.50%, 2/1/19

 

143,937

 

$2,517

 

Commercial Vehicle Group, Inc., 7.875%, 4/15/19 (k)

 

2,617,680

 

600

 

Pittsburgh Glass Works LLC, 8.00%, 11/15/18 (a)(d)(k)

 

657,000

 

 

 

 

 

3,418,617

 

 

 

Banking – 13.5%

 

 

 

 

 

Ally Financial, Inc. (k),

 

 

 

1,850

 

6.75%, 12/1/14

 

1,912,437

 

5,000

 

8.30%, 2/12/15

 

5,281,250

 

3,900

 

Banco Continental SAECA, 8.875%, 10/15/17 (a)(d)(k)

 

4,192,500

 

 

 

Barclays Bank PLC,

 

 

 

200

 

7.625%, 11/21/22

 

227,625

 

£2,170

 

14.00%, 6/15/19 (h)(k)

 

5,024,022

 

 

 

BPCE S.A. (h)(k),

 

 

 

€750

 

9.00%, 3/17/15

 

1,100,862

 

350

 

9.25%, 4/22/15

 

516,163

 

$700

 

Citigroup, Inc., 6.30%, 5/15/24 (h)

 

700,298

 

 

 

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (k),

 

 

 

€3,000

 

6.875%, 3/19/20

 

4,963,242

 

$4,865

 

11.00%, 6/30/19 (a)(d)(h)

 

6,494,775

 

 

 

Credit Agricole S.A. (h)(k),

 

 

 

1,100

 

7.875%, 1/23/24 (a)(d)

 

1,184,865

 

£1,400

 

8.125%, 10/26/19

 

2,676,957

 

$3,200

 

Credit Suisse AG, 6.50%, 8/8/23 (a)(d)(k)

 

3,580,128

 

£1,200

 

DnB NOR Bank ASA, 6.012%, 3/29/17 (h)(k)

 

2,156,255

 

$700

 

Goldman Sachs Group, Inc., 5.70%, 5/10/19 (h)

 

718,341

 

 

 

LBG Capital No. 1 PLC,

 

 

 

£1,500

 

7.588%, 5/12/20

 

2,652,897

 

300

 

7.869%, 8/25/20

 

531,339

 

 

 

LBG Capital No. 2 PLC,

 

 

 

€250

 

15.00%, 12/21/19

 

530,489

 

£3,043

 

15.00%, 12/21/19 (k)

 

7,475,497

 

$1,300

 

Sberbank of Russia Via SB Capital S.A., 5.717%, 6/16/21 (k)

 

1,248,813

 

2,500

 

UBS Preferred Funding Trust V, 6.243%, 5/15/16 (h)(k)

 

2,659,500

 

1,300

 

Wells Fargo & Co., 5.90%, 6/15/24 (h)(k)

 

1,337,437

 

 

 

 

 

57,165,692

 

 

April 30, 2014 | Semi-Annual Report  21

 


 

Schedule of Investments

PIMCO Income Opportunity Fund

April 30, 2014 (unaudited) (continued)

 

 

Principal
Amount
(000s)

 

 

 

Value

 

 

 

Building Materials – 0.1%

 

 

 

 

 

Corporacion GEO S.A.B. de C.V. (a)(d)(f),

 

 

 

$200

 

8.875%, 3/27/22

 

$27,500

 

1,800

 

9.25%, 6/30/20

 

247,500

 

 

 

 

 

275,000

 

 

 

Capital Markets – 1.9%

 

 

 

8,000

 

Blackstone CQP Holdco LP, 2.324%, 3/18/19 (a)(b)(d)(l)
(acquisition cost-$8,000,000; purchased 3/18/14)

 

8,032,399

 

 

 

Coal – 0.8%

 

 

 

2,100

 

Berau Coal Energy Tbk PT, 7.25%, 3/13/17 (a)(d)(k)

 

2,079,000

 

 

 

Mongolian Mining Corp.,

 

 

 

2,100

 

8.875%, 3/29/17

 

1,270,500

 

300

 

8.875%, 3/29/17 (a)(d)

 

181,500

 

87

 

Westmoreland Coal Co., 10.75%, 2/1/18 (a)(b)(d)(e)(l)
(acquisition cost-$92,341; purchased 1/29/14)

 

95,483

 

 

 

 

 

3,626,483

 

 

 

Commercial Services – 0.0%

 

 

 

12

 

ADT Corp., 4.875%, 7/15/42

 

9,945

 

 

 

Diversified Financial Services – 6.6%

 

 

 

2,300

 

AGFC Capital Trust I, 6.00%, 1/15/67 (converts to FRN on 1/15/17) (a)(d)(k)

 

1,955,000

 

3,400