PIMCO Dynamic Credit and Mortgage Income Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-22758

PIMCO Dynamic Credit and Mortgage Income Fund

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

William G. Galipeau

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive

Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

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

Date of fiscal year end: June 30

Date of reporting period: June 30, 2016

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

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


Item 1. Reports to Shareholders.

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


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PIMCO Closed-End Funds

 

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Annual Report

 

June 30, 2016

 

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PCM Fund, Inc.

PIMCO Global StocksPLUS® & Income Fund

PIMCO Income Opportunity Fund

PIMCO Strategic Income Fund, Inc.

PIMCO Dynamic Credit and Mortgage Income Fund

(formerly PIMCO Dynamic Credit Income Fund)

PIMCO Dynamic Income Fund

 

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Table of Contents

 

            Page  
     

Letter from the Chairman of the Board & President

        2   

Important Information About the Funds

        4   

Financial Highlights

        16   

Statements of Assets and Liabilities

        18   

Consolidated Statements of Assets and Liabilities

        19   

Statements of Operations

        20   

Consolidated Statements of Operations

        21   

Statements of Changes in Net Assets

        22   

Consolidated Statements of Changes in Net Assets

        24   

Statements of Cash Flows

        25   

Consolidated Statements of Cash Flows

        26   

Notes to Financial Statements

        89   

Report of Independent Registered Public Accounting Firm

        112   

Glossary

        113   

Federal Income Tax Information

        114   

Shareholder Meeting Results

        115   

Investment Strategy Updates

        116   

Dividend Reinvestment Plan

        118   

Management of the Funds

        120   

Approval of Investment Management Agreement

        123   

Privacy Policy

        130   
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PCM Fund, Inc.

     9         27   

PIMCO Global StocksPLUS® & Income Fund

     10         34   

PIMCO Income Opportunity Fund

     11         45   

PIMCO Strategic Income Fund, Inc.

     12         56   

PIMCO Dynamic Credit and Mortgage Income Fund(1)

     13         65   

PIMCO Dynamic Income Fund(1)

     14         79   

 

  (1) 

Consolidated Schedule of Investments


Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

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

 

Outside of the reporting period, PIMCO announced on July 19, 2016 that the firm’s Managing Directors have appointed Emmanuel (Manny) Roman as PIMCO’s next Chief Executive Officer. PIMCO’s current CEO Douglas Hodge will assume a new role as Managing Director and Senior Advisor when Mr. Roman joins PIMCO on November 1st. The announcement of Mr. Roman as PIMCO’s CEO is the culmination of a process undertaken by the firm to hire a senior executive who would add leadership and strategic insights combined with a deep appreciation of PIMCO’s diversified global businesses, investment process and focus on superior investment performance and client service. Mr. Roman’s appointment has the full support of the firm’s leadership including Mr. Hodge, PIMCO’s President Jay Jacobs, the firm’s Executive Committee and its Managing Directors. Mr. Roman has nearly 30 years of experience in the investment industry, with expertise in fixed income and proven executive leadership, most recently as CEO of Man Group PLC, one of the world’s largest publicly traded alternative asset managers and leader in liquid, high-alpha investment strategies.

 

For the 12-month reporting period ended June 30, 2016

 

Despite a number of headwinds, the U.S. economy was resilient and continued to expand during the reporting period. That being said, the pace was far from robust. Looking back, U.S. gross domestic product (“GDP”), which represents the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at a 2.0% annual pace during the third quarter of 2015. Economic activity then decelerated, as GDP grew at a revised 0.9% and 0.8% annual pace during the fourth quarter of 2015 and first quarter of 2016, respectively. Finally, the Commerce Department’s initial reading — released after the reporting period had ended — showed that second quarter 2016 GDP grew at an annual pace of 1.2%.

 

At its meeting in December 2015, the Federal Reserve (“Fed”) took its initial step toward normalizing monetary policy. In particular, the Fed raised interest rates from a range between 0% and 0.25% to a range between 0.25% and 0.50%. However, since that time the Fed has remained on hold. In its official statement following the Fed’s June 2016 meeting it said, “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

 

Economic activity outside the U.S. was mixed during the reporting period. In the eurozone, underlying economies gradually improved from low levels due to better domestic demand, while low inflation remained a concern. Against this backdrop, the European Central Bank (“ECB”) introduced additional easing measures, including the purchase of corporate bonds in an attempt to stimulate growth and spur inflation. The Bank of Japan also continued to pursue highly accommodative monetary policy. While the Bank of England kept rates on hold, British voters’ decision in June 2016 to leave the European Union (“Brexit”) led to speculation that the country’s central bank would lower rates in the near future. Elsewhere, economic activity in China moderated, which impacted growth in many emerging market economies.

 

Commodity prices were highly volatile during the reporting period. Crude oil declined from $59 to $37 during the first half of the period and then rallied to $48 at the end of June 2016. Finally, foreign exchange markets fluctuated given economic data, central bank policy and, most recently, Brexit, which sent the pound sharply lower.

 

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Outlook

 

PIMCO’s baseline view is for a version of today’s status quo to continue and evolve gradually for the next three to five years. More specifically, PIMCO foresees U.S. GDP growth at or slightly above trend of 1.5% to 2% per year, inflation fluctuating around the 2% Fed’s target, the Fed gradually lifting the federal funds rate to the “New Neutral” range of 2% to 3% nominal and fiscal policy providing modest positive support to aggregate demand.

 

Overseas, PIMCO’s baseline view for the eurozone is for lackluster, trend-like growth between 1% and 1.5% per year, with inflation remaining somewhat below 2%. In terms of monetary policy, PIMCO sees the ECB continuing to do the heavy lifting and eventually even pursuing an extension of the quantitative easing (“QE”) program. PIMCO’s baseline view sees modest positive support for European growth from fiscal policy, over the next three to five years. Finally, for China, PIMCO’s baseline view is that of a managed slowdown, with growth between 5% and 6% and inflation around 2%.

 

In the following pages of this PIMCO Closed-End Funds Annual Report, please find specific details regarding investment performance and a discussion of factors that most affected the Funds’ performance over the 12 months ended June 30, 2016.

 

Thank you for investing with us. We value your trust and will continue to work diligently to meet your investment needs. If you have questions regarding any of your PIMCO Closed-End Funds investments, please contact your financial advisor or call the Funds’ shareholder servicing agent at (844) 33-PIMCO, or (844) 337-4626. We also invite you to visit our website at www.pimco.com to learn more about our views.

 

Sincerely,

 

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Hans W. Kertess   Peter G. Strelow
Chairman of the Board   President

 

  ANNUAL REPORT   JUNE 30, 2016   3


Important Information About the Funds

 

We believe that bond funds have an important role to play in a well- diversified investment portfolio. It is important to note, however, that in an environment where interest rates trend upward, rising rates would negatively impact the performance of most bond funds, and fixed- income securities held by a Fund are likely to decrease in value. A number of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions, etc.). Accordingly, changes in interest rates can be sudden, and there is no guarantee that Fund Management will anticipate such movement. As of the date of this report, interest rates in the U.S. are at or near historically low levels. As such, bond funds may currently face an increased exposure to the risks associated with rising interest rates. This is especially true since the Federal Reserve Board has concluded its quantitative easing program and, at its meeting on December 16, 2015, raised interest rates for the first time since 2006 from a target range of 0% to 0.25% to a target range of 0.25% to 0.50%. Further, while the U.S. bond market has steadily grown over the past three decades, dealer inventories of corporate bonds have remained relatively stagnant. As a result, there has been a significant reduction in the ability of dealers to “make markets” in corporate bonds. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets, which could result in increased losses to a Fund. Bond funds and individual bonds with a longer duration (a measure of the sensitivity of a security’s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. In addition, in the current low interest rate environment, the market price of the Funds’ common shares may be particularly sensitive to changes in interest rates or the perception that there will be a change in interest rates.

 

The use of derivatives may subject the Funds to greater volatility than investments in traditional securities. The Funds may use derivative instruments for hedging purposes or as part of an investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, call risk, credit risk, management risk and the risk that a Fund could not close out a position when it would be most advantageous to do so. Certain derivative transactions may have a leveraging effect on a Fund. For example, a small investment in a derivative instrument may have a significant impact on a Fund’s exposure to interest rates, currency exchange rates or other investments. As a result, a relatively small price movement in a derivative instrument may cause an immediate and substantial loss or gain, which translates into heightened volatility in a Fund’s net asset value “NAV”. A Fund may engage in such transactions regardless of whether the Fund owns the asset, instrument or components of the index underlying a derivative instrument. A Fund may invest a significant portion of its assets in these types of instruments. If it does, a Fund’s investment exposure

could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not directly own. Changes in regulation relating to a mutual fund’s use of derivatives and related instruments could potentially limit or impact a Fund’s ability to invest in derivatives, limit a Fund’s ability to employ certain strategies that use derivatives and adversely affect the value or performance of derivatives and a Fund.

 

PIMCO Global StocksPLUS® & Income Fund’s (“PGP”) monthly distributions are expected to include, among other possible sources, interest income from its debt portfolio and payments and premiums (characterized as capital for financial accounting purposes and as ordinary income for tax purposes) generated by certain types of interest rate derivatives.

 

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

 

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

 

A Fund’s income- and gain-generating strategies may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced

 

 

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

 

PGP’s index option strategy, to the extent utilized, seeks to generate payments and premiums from writing options that may offset some or all of the capital losses incurred as a result of paired swaps transactions. However, the Fund may use paired swap transactions to support monthly distributions where the index option strategy does not produce an equivalent amount of offsetting gains, including without limitation when such strategy is not being used to a significant extent. In addition, gains (if any) generated from the index option strategy may be offset by the Fund’s realized capital losses, including any available capital loss carryforwards. PGP currently has significant capital loss carryforwards, some of which will expire at particular dates, and to the extent that the Fund’s capital losses exceed capital gains, the Fund cannot use its capital loss carryforwards to offset capital gains.

 

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

 

A Fund’s use of leverage creates the opportunity for increased income for the Fund’s common shareholders, but also creates special risks. Leverage is a speculative technique that may expose a Fund to greater risk and increased costs. If shorter-term interest rates rise relative to the rate of return on a Fund’s portfolio, the interest and other costs 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 the Fund’s common shareholders. In addition, fees and expenses of any form of leverage used by a Fund will be borne entirely by its common shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Fund’s common shares. There can be no assurance that a Fund’s use of leverage will result in a

higher yield on its common shares, and it may result in losses. Leverage creates several major types of risks for a Fund’s common shareholders, including: (1) the likelihood of greater volatility of net asset value and market price of the Fund’s common shares, and of the investment return to the Fund’s common shareholders, than a comparable portfolio without leverage; (2) the possibility either that the Fund’s common share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on the Fund’s common shares will fluctuate because such costs vary over time; and (3) the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause a greater decline in the net asset value of the Fund’s common shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Fund’s common shares.

 

A Fund’s investments in and exposure to foreign securities involve special risks. For example, the value of these investments may decline in response to unfavorable political and legal developments, unreliable or untimely information or economic and financial instability. Foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. issuers. The securities markets of certain foreign countries are relatively small, with a limited number of companies representing a small number of industries. Issuers of foreign securities are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, auditing and custody standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or other confiscation, currency blockage, political changes or diplomatic developments could adversely affect a Fund’s investments in foreign securities. In the event of nationalization, expropriation or other confiscation, a Fund could lose its entire investment in foreign securities. Risks associated with investing in foreign securities may be increased when a Fund invests in emerging markets. For example, if a Fund invests in emerging market debt, it may face increased exposure to interest rate, liquidity, volatility, and redemption risk due to the specific economic, political, geographical, or legal background of the emerging market.

 

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among others, credit risk, interest rate risk, variable and floating rate securities risk, and, as applicable, risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below-investment grade securities. In the case of a loan participation or assignment, a Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. In the event of the insolvency of the lender selling a loan participation, a Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. The Funds may be subject to heightened or additional risks and potential liabilities and

 

 

  ANNUAL REPORT   JUNE 30, 2016   5


Important Information About the Funds (Cont.)

 

costs by investing in mezzanine and other subordinated loans or acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans. To the extent that a Fund originates a loan, it may be responsible for all or a substantial portion of the expenses associated with initiating the loan, irrespective of whether the loan transaction is ultimately consummated or closed. This may include significant legal and due diligence expenses, which will be indirectly borne by a Fund and its shareholders.

 

Mortgage-related and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, if a Fund holds mortgage-related securities, it may experience additional volatility since individual mortgage holders are less likely to exercise prepayment options, thereby putting additional downward pressure on the value of these securities and potentially causing the Fund to lose money. This is known as extension risk. Mortgage-backed securities can be highly sensitive to rising interest rates, such that even small movements can cause an investing Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. In addition, adjustable and fixed rate mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Funds because the Funds may have to reinvest that money at the lower prevailing interest rates. The Funds’ investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset-backed securities may be largely dependent upon the cash flows generated by the assets backing the securities, and asset-backed securities may not have the benefit of any security interest in the related assets.

 

High-yield bonds (commonly referred to as “junk bonds”) typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Further, markets for lower-rated bonds are typically less liquid than for higher rated bonds, and public information is usually less abundant in such markets. Thus, high yield investments increase the chance that a Fund will lose money on its investment. The Funds may also invest in bonds and other instruments that are not rated, but which PIMCO considers to be equivalent to high-yield investments. The Funds may hold defaulted securities that may involve special considerations including bankruptcy

proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material.

 

Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When a Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the NAV of the Funds’ shares.

 

The global economic crisis brought several small economies in Europe to the brink of bankruptcy and many other economies into recession and weakened the banking and financial sectors of many European countries. For example, the governments of Greece, Spain, Portugal, and the Republic of Ireland have all experienced large public budget deficits, the effects of which are still yet unknown and may slow the overall recovery of the European economies from the global economic crisis. In addition, due to large public deficits, some European countries may be dependent on assistance from other European governments and institutions or other central banks or supranational agencies such as the International Monetary Fund. Assistance may be dependent on a country’s implementation of reforms or reaching a certain level of performance. Failure to reach those objectives or an insufficient level of assistance could result in a deep economic downturn which could significantly affect the value of a Fund’s European investments. It is possible that one or more Economic and Monetary Union of the European Union (“EMU”) member countries could abandon the euro and return to a national currency and/or that the euro will cease to exist as a single currency in its current form. The exit of any country out of the euro may have an extremely destabilizing effect on other eurozone countries and their economies and a negative effect on the global economy as a whole. Such an exit by one country may also increase the possibility that additional countries may exit the euro should they face similar financial difficulties. In June 2016, the United Kingdom approved a referendum to leave the European Union. Significant uncertainty remains in the market regarding the ramifications of that development, and the range and potential implications of possible political, regulatory, economic and market outcomes are difficult to predict.

 

 

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

 

The Funds may invest in securities and instruments that are economically tied to Russia. Investments in Russia are subject to various risks such as political, economic, legal, market and currency risks. The risks include uncertain political and economic policies, short term market volatility, poor accounting standards, corruption and crime, an inadequate regulatory system, and unpredictable taxation. Investments in Russia are particularly subject to the risk that economic sanctions may be imposed by the United States and/or other countries. Such sanctions — which may impact companies in many sectors, including energy, financial services and defense, among others — may negatively impact the Funds’ performance and/or ability to achieve their investment objectives. The Russian securities market is characterized by limited volume of trading, resulting in difficulty in obtaining accurate prices. The Russian securities market, as compared to U.S. markets, has significant price volatility, less liquidity, a smaller market capitalization and a smaller number of traded securities. There may be little publicly available information about issuers. Settlement, clearing and

registration of securities transactions are subject to risks because of registration systems that may not be subject to effective government supervision. This may result in significant delays or problems in registering the transfer of securities. Russian securities laws may not recognize foreign nominee accounts held with a custodian bank, and therefore the custodian may be considered the ultimate owner of securities they hold for their clients. Ownership of securities issued by Russian companies is recorded by companies themselves and by registrars instead of through a central registration system. It is possible that the ownership rights of the Funds could be lost through fraud or negligence. While applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may be difficult for the Funds to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. Adverse currency exchange rates are a risk and there may be a lack of available currency hedging instruments. Investments in Russia may be subject to the risk of nationalization or expropriation of assets. Oil, natural gas, metals, and timber account for a significant portion of Russia’s exports, leaving the country vulnerable to swings in world prices.

 

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

 

The Funds may be subject to various risks in addition to those described above. Some of these risks may include, but are not limited to, the following: asset allocation risk, credit risk, stressed securities risk, distressed and defaulted securities risk, corporate bond risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, extension risk, prepayment risk, privately issued mortgage-related securities risk, mortgage market/ subprime risk, foreign (non-U.S.) investment risk, emerging markets risk, currency risk, redenomination risk, non- diversification risk, management risk, municipal bond risk, inflation- indexed security risk, senior debt risk, loans, participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, foreign (non-U.S.) government securities risk, valuation risk, segregation and cover risk, focused investment risk, credit default

swaps risk, event-linked securities risk, counterparty risk, preferred

 

 

  ANNUAL REPORT   JUNE 30, 2016   7


Important Information About the Funds (Cont.)

 

securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory risk, tax risk, recent economic conditions risk, market disruptions and geopolitical risk, potential conflicts of interest involving allocation of investment opportunities, repurchase agreements risk, securities lending risk, zero-coupon bond and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk and convertible securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this Report.

 

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

 

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

 

Fund Name         Commencement
of Operations
    Diversification
Status

PCM Fund, Inc.

      09/02/93      Diversified

PIMCO Global StocksPLUS & Income Fund

      05/31/05      Diversified

PIMCO Income Opportunity Fund

      11/30/07      Diversified

PIMCO Strategic Income Fund, Inc.

      02/24/94      Diversified

PIMCO Dynamic Credit and Mortgage Income Fund

      01/31/13      Diversified

PIMCO Dynamic Income Fund

      05/30/12      Diversified

 

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

 

The Trustees/Directors1 are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with the Investment Manager and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s original or any subsequent prospectus or Statement of Additional

Information (SAI), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings from or on behalf of a Fund creates a contract between or among any shareholder 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 prospectus, SAI or shareholder report and is otherwise still in effect.

 

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940. The Proxy Policy has been adopted by the Funds as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures that PIMCO uses to vote proxies relating to portfolio securities of each Fund, and information about how each Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, are available without charge, upon request, by calling the Funds at (844) 33-PIMCO
(844-337-4626), on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

 

Each Fund files a complete schedule of its portfolio holdings with the SEC for the first and third quarters of its fiscal year on Form N-Q. A copy of each Fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and is available without charge, upon request by calling the Funds at (844) 33-PIMCO
(844-337-4626) and on the Funds’ website at www.pimco.com. Updated portfolio holdings information about a Fund will be available at www.pimco.com approximately 15 calendar days after such Fund’s most recent fiscal quarter end, and will remain accessible until such Fund files a Form N-Q or a shareholder report for the period which includes the date of the information. Information on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.

 

 

 

1  Hereinafter, the terms “Trustee” or “Trustees” used herein shall refer to a Director or Directors of applicable Funds.

 

8   PIMCO CLOSED-END FUNDS     


PCM Fund, Inc.

 

Symbol on NYSE - PCM

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    38.7%   

Asset-Backed Securities

    34.1%   

Corporate Bonds & Notes

    16.0%   

Short-Term Instruments

    6.4%   

Bank Loan Obligations

    2.8%   

Other

    2.0%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(¹)

 

Market Price

    $9.72   

NAV

    $9.71   

Premium/(Discount) to NAV

    0.10%   

Market Price Distribution Yield(2)

    9.88%   

NAV Distribution Yield(2)

    9.89%   

Total Effective Leverage(3)

    46%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     5 Year     10 Year     Commencement
of Operations
(09/02/93)
 
Market Price     6.91%        6.82%        7.68%        8.20%   
NAV     0.14%        9.20%        9.80%        8.78%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

PCM’s primary investment objective is to seek to achieve high current income. Capital gains from the disposition of investments are a secondary objective of the Fund.

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

The Fund’s exposure to U.S. interest rates was the primary contributor to performance, as interest rates rallied significantly.

 

»  

The Fund’s allocation to commercial mortgage-backed securities (“CMBS”) contributed to performance. The sector performed well, with the Barclays Non-Agency Investment Grade CMBS Index outperforming like-duration Treasuries.

 

»  

The Fund’s allocation to non-agency mortgage-backed securities contributed to returns. The sector continued to benefit from an improving U.S. housing market and limited outstanding supply.

 

»  

The Fund’s allocation to intermediate-term investment grade corporate bonds was a modest contributor to performance. The sector performed well, with the Barclays Intermediate U.S. Corporate Index outperforming like-duration Treasuries.

 

»  

The Fund’s allocation to high yield corporate bonds was the primary detractor from performance. The asset class faced headwinds from lower energy prices, financial market volatility and mutual fund withdrawals, while subordinate bonds from financial issuers experienced weakness following the outcome of the U.K.’s referendum to leave the European Union.

 

  ANNUAL REPORT   JUNE 30, 2016   9


PIMCO Global StocksPLUS® & Income Fund

 

Symbol on NYSE - PGP

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    39.3%   

Corporate Bonds & Notes

    31.9%   

Short-Term Instruments

    13.4%   

Asset-Backed Securities

    10.5%   

U.S. Government Agencies

    1.9%   

Other

    3.0%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(1)

 

Market Price

    $19.53   

NAV

    $9.76   

Premium/(Discount) to NAV

    100.10%   

Market Price Distribution Yield(2)

    11.27%   

NAV Distribution Yield(2)

    22.54%   

Total Effective Leverage(3)

    45%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     5 Year     10 Year     Commencement
of Operations
(05/31/05)
 
Market Price     31.38%        7.98%        13.19%        12.62%   
NAV     (7.04)%        9.97%        10.14%        10.78%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

PIMCO Global StocksPLUS® & Income Fund’s primary investment objective is to seek total return comprised of current income, current gains and long-term capital appreciation.

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

A yield curve steepening strategy, implemented through U.S. dollar interest rate swaps, was the primary detractor from performance, as the swap curve flattened.

 

»  

Exposure to the MSCI EAFE Index through equity index derivatives detracted from absolute returns. International equities (as represented by the MSCI EAFE Index) declined 10.83% over the 12 months ended June 30, 2016.

 

»  

The Fund’s allocation to high yield corporate bonds detracted from performance. The asset class faced headwinds from lower energy prices, financial market volatility and mutual fund withdrawals, while subordinate bonds from financial issuers experienced weakness following the outcome of the U.K.’s referendum to leave the European Union.

 

»  

Exposure to residential non-agency mortgage-backed securities added modestly to performance, as these securities benefited from an improving housing market and limited outstanding supply.

 

»  

The Fund’s allocation to commercial mortgage-backed securities (“CMBS”) contributed to performance. The sector performed well, with the Barclays Investment Grade Non-Agency CMBS Index outperforming like-duration Treasuries.

 

»  

The Fund’s use of paired swap transactions during the reporting period supported the Fund’s monthly distributions, but generally resulted in a decline in the Fund’s net asset value.

 

10   PIMCO CLOSED-END FUNDS     


PIMCO Income Opportunity Fund

 

Symbol on NYSE - PKO

 

Allocation Breakdown

 

Corporate Bonds & Notes

    33.4%   

Asset-Backed Securities

    26.6%   

Non-Agency Mortgage-Backed Securities

    26.0%   

Short-Term Instruments

    5.6%   

Convertible Preferred Securities

    3.4%   

Other

    5.0%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(1)

 

Market Price

    $23.00   

NAV

    $22.59   

Premium/(Discount) to NAV

    1.81%   

Market Price Distribution Yield(2)

    9.91%   

NAV Distribution Yield(2)

    10.09%   

Total Effective Leverage(3)

    43%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     5 Year     Commencement
of Operations
(11/30/07)
 
Market Price     7.87%        8.30%        11.06%   
NAV     (1.83)%        9.36%        11.40%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

PIMCO Income Opportunity Fund’s investment objective is to seek current income as a primary focus and also capital appreciation.

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

The Fund’s allocation to high yield corporate bonds was the primary detractor from performance. The asset class faced headwinds from lower energy prices, financial market volatility and mutual fund withdrawals, while subordinate bonds from financial issuers experienced weakness following the outcome of the U.K.’s referendum to leave the European Union.

 

»  

Within the high yield corporate bond market, exposure to financials, industrials, capital goods, telecommunications and utility credits detracted from results.

 

»  

Exposure to local and hard currency-denominated Brazilian debt was a major detractor from returns. Brazil was negatively impacted by its slowing economy, high inflation and a political crisis.

 

»  

The Fund’s exposure to U.S. interest rates benefited performance, as interest rates rallied. This positive impact, however, was partially offset by strategies designed to benefit from rising long-term interest rates, as the yield curve flattened.

 

»  

The Fund’s exposure to U.S. dollar-denominated Russian quasi-sovereign bonds contributed to returns. Spreads on these issues continued to retrace much of the widening that occurred in recent years, as geopolitical tensions in the region eased and investor sentiment improved.

 

  ANNUAL REPORT   JUNE 30, 2016   11


PIMCO Strategic Income Fund, Inc.

 

Symbol on NYSE - RCS

 

Allocation Breakdown

 

U.S. Government Agencies

    59.5%   

Non-Agency Mortgage-Backed Securities

    14.1%   

Corporate Bonds & Notes

    8.4%   

U.S. Treasury Obligations

    8.1%   

Asset-Backed Securities

    6.4%   

Short-Term Instruments

    1.7%   

Other

    1.8%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(1)

 

Market Price

    $9.61   

NAV

    $7.89   

Premium/(Discount) to NAV

    21.80%   

Market Price Distribution Yield(2)

    9.99%   

NAV Distribution Yield(2)

    12.17%   

Total Effective Leverage(3)

    25%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     5 Year     10 Year     Commencement
of Operations
(02/24/94)
 
Market Price     24.14%        8.41%        11.23%        9.34%   
NAV     4.06%        8.55%        10.85%        8.63%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

The primary investment objective of PIMCO Strategic Income Fund, Inc. is to seek to generate a level of income that is higher than that generated by high quality, intermediate-term U.S. debt securities. The Fund also seeks capital appreciation to the extent consistent with this objective.

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

The Fund’s allocation to agency mortgage-backed securities was the primary contributor to performance, as the sector benefited from continued Federal Reserve reinvestment activity.

 

»  

The Fund’s exposure to U.S. dollar-denominated Russian quasi-sovereign bonds contributed to returns. Spreads on these issues continued to retrace much of the widening that occurred in recent years, as geopolitical tensions in the region eased and investor sentiment improved.

 

»  

The Fund’s allocation to select high yield energy corporate bonds added to performance despite weakness in broader high yield corporate bond and commodity markets.

 

»  

The Fund’s allocation to intermediate-term investment grade corporate bonds was a modest contributor to performance. The sector performed well, with the Barclays Intermediate U.S. Corporate Index outperforming like-duration Treasuries.

 

»  

The Fund’s exposure to European residential mortgage-backed securities detracted from performance following the outcome of the U.K.’s referendum to leave the European Union.

 

12   PIMCO CLOSED-END FUNDS     


PIMCO Dynamic Credit and Mortgage Income Fund

 

Symbol on NYSE - PCI

 

Allocation Breakdown

 

Asset-Backed Securities

    42.6%   

Corporate Bonds & Notes

    24.9%   

Non-Agency Mortgage-Backed Securities

    23.8%   

Short-Term Instruments

    5.5%   

Bank Loan Obligations

    2.0%   

Other

    1.2%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(1)

 

Market Price

    $19.13   

NAV

    $20.43   

Premium/(Discount) to NAV

    (6.36)%   

Market Price Distribution Yield(2)

    10.29%   

NAV Distribution Yield(2)

    9.64%   

Total Effective Leverage(3)

    47%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     Commencement
of Operations
(01/31/13)
 
Market Price     6.69%        2.52%   
NAV     (1.36)%        5.15%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

PIMCO Dynamic Credit and Mortgage Income Fund’s (formerly PIMCO Dynamic Credit Income Fund) primary investment objective is to seek current income and capital appreciation is a secondary objective.

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

The Fund’s allocation to high yield corporate bonds was the primary detractor from performance. The asset class faced headwinds from lower energy prices, financial market volatility and mutual fund withdrawals, while subordinate bonds from financial issuers experienced weakness following the outcome of the U.K.’s referendum to leave the European Union.

 

»  

Exposure to local and hard currency-denominated Brazilian debt was a significant detractor from returns. Brazil was negatively impacted by its slowing economy, high inflation and a political crisis.

 

»  

The Fund’s exposure to U.S. interest rates strongly benefited performance, as interest rates rallied. This positive impact, however, was partially offset by strategies designed to benefit from rising long-term interest rates, as the yield curve flattened.

 

»  

The Fund’s allocation to commercial mortgage-backed securities (“CMBS”) contributed to performance. The sector performed well, with the Barclays Investment Grade Non-Agency CMBS Index outperforming like-duration Treasuries.

 

»  

The Fund’s allocation to intermediate-term investment grade corporate bonds contributed to performance. The sector performed well, with the Barclays Intermediate U.S. Corporate Index outperforming like-duration Treasuries.

 

  ANNUAL REPORT   JUNE 30, 2016   13


PIMCO Dynamic Income Fund

 

Symbol on NYSE - PDI

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    54.5%   

Asset-Backed Securities

    24.7%   

Corporate Bonds & Notes

    11.7%   

Short-Term Instruments

    5.6%   

U.S. Government Agencies

    1.3%   

Other

    2.2%   
   

% of Investments, at value as of 06/30/2016. Financial derivative instruments, if any, are excluded.

Fund Information (as of June 30, 2016)(1)

 

Market Price

    $27.57   

NAV

    $26.56   

Premium/(Discount) to NAV

    3.80%   

Market Price Distribution Yield(2)

    9.60%   

NAV Distribution Yield(2)

    9.96%   

Total Effective Leverage(3)

    47%   
 

 

Average Annual Total Return(1) for the period ended June 30, 2016  
    1 Year     Commencement
of Operations
(05/30/12)
 
Market Price     13.75%        16.54%   
NAV     1.79%        16.91%   

 

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

Following are key factors impacting the Fund’s performance during the reporting period:

 

»  

The Fund’s exposure to U.S. interest rates was the primary contributor to performance as interest rates rallied significantly.

 

»  

The Fund’s allocation to non-agency mortgage-backed securities contributed to returns. The sector continued to benefit from an improving U.S. housing market and limited outstanding supply.

 

»  

The Fund’s allocation to commercial mortgage-backed securities (“CMBS”) contributed to performance. The sector performed well, with the Barclays Investment Grade Non-Agency CMBS Index outperforming like-duration Treasuries.

 

»  

The Fund’s allocation to intermediate-term investment grade corporate bonds was a modest contributor to performance. The sector performed well, with the Barclays Intermediate U.S. Corporate Index outperforming like-duration Treasuries.

 

»  

The Fund’s exposure to U.S. dollar-denominated Russian quasi-sovereign bonds contributed to returns. Spreads on these issues continued to retrace much of the widening that occurred in recent years, as geopolitical tensions in the region eased and investor sentiment improved.

 

»  

The Fund’s allocation to high yield corporate bonds was the primary detractor from performance. The asset class faced headwinds from lower energy prices, financial market volatility and mutual fund withdrawals, while subordinate bonds from financial issuers experienced weakness following the outcome of the U.K.’s referendum to leave the European Union.

 

14   PIMCO CLOSED-END FUNDS     


 

 

(THIS PAGE INTENTIONALLY LEFT BLANK)

 

  ANNUAL REPORT   JUNE 30, 2016   15


Financial Highlights

 

          Investment Operations           Less Distributions(b)  
                                           
    Net Asset Value
Beginning of
Year or
Period
    Net  Investment
Income(a)
   

Net Realized/

Unrealized

Gain (Loss)

    Total            From Net
Investment
Income
   

    
From Net

Realized

Capital

Gain (Loss)

   

Tax Basis

Return of

Capital

    Total  

PCM Fund, Inc.

                 

06/30/2016

  $   10.68      $   1.22      $   (1.23   $   (0.01           $   (0.96   $ 0.00      $ 0.00      $ (0.96

01/01/2015 - 06/30/2015(e)

    10.72        0.44        0.00     0.44                (0.48     0.00        0.00        (0.48 )(i) 

12/31/2014

    11.17        0.94        (0.34     0.60                (1.05     0.00        0.00        (1.05

12/31/2013

    11.35        1.12        (0.20     0.92                (1.10     0.00        0.00        (1.10

12/31/2012

    9.48        1.06        1.93        2.99                (1.12     0.00        0.00        (1.12

12/31/2011

    9.88        1.13        (0.47     0.66                (1.06     0.00        0.00        (1.06

PIMCO Global StocksPLUS® & Income Fund

                 

06/30/2016

  $ 12.88      $ 1.15      $ (2.07   $ (0.92           $ (2.02   $ 0.00      $ (0.18   $ (2.20

04/01/2015 - 06/30/2015(f)

    12.82        0.34        0.27        0.61                (0.55     0.00        0.00        (0.55 )(i) 

03/31/2015

    14.72        1.15        (0.85     0.30                (2.20     0.00        0.00        (2.20

03/31/2014

    14.32        1.39        1.21        2.60                (2.20     0.00        0.00        (2.20

03/31/2013

    12.57        1.38        2.57        3.95                (2.20     0.00        0.00        (2.20

03/31/2012

    14.88        1.61        (1.72     (0.11             (2.20     0.00        0.00        (2.20

PIMCO Income Opportunity Fund

                 

06/30/2016

  $ 25.94      $ 2.33      $ (2.89   $ (0.56           $ (2.28   $   (0.51   $ 0.00      $ (2.79

11/01/2014 - 06/30/2015(g)

    28.38        1.54        (0.86     0.68                (2.34     (0.77       (0.01       (3.12 )(i) 

10/31/2014

    28.67        2.71        (0.12     2.59                (2.88     0.00        0.00        (2.88

10/31/2013

    27.86        2.87        0.77        3.64                (2.83     0.00        0.00        (2.83

10/31/2012

    24.62        2.61        3.69        6.30                (3.06     0.00        0.00        (3.06

10/31/2011

    26.97        3.24        (2.20     1.04                (3.39     0.00        0.00        (3.39

PIMCO Strategic Income Fund, Inc.

                 

06/30/2016

  $ 8.58      $ 0.76      $ (0.45   $ 0.31              $ (1.00   $ 0.00      $ 0.00      $ (1.00

02/01/2015 - 06/30/2015(h)

    8.57        0.30        0.11        0.41                (0.40     0.00        0.00        (0.40 )(i) 

01/31/2015

    9.24        0.90        (0.55     0.35                (1.02     0.00        0.00        (1.02

01/31/2014

    9.66        0.99        (0.30     0.69                (1.11     0.00        0.00        (1.11

01/31/2013

    8.91        1.05        0.95        2.00                (1.25     0.00        0.00        (1.25

01/31/2012

    9.97        1.36        (1.03     0.33                (1.39     0.00        0.00        (1.39

PIMCO Dynamic Credit and Mortgage Income Fund (Consolidated)

                 

06/30/2016

  $ 23.00      $ 2.01      $ (2.40   $ (0.39           $ (2.18   $ 0.00      $ 0.00      $ (2.18

01/01/2015 - 06/30/2015(e)

    22.83        0.76        0.35        1.11                (0.94     0.00        0.00        (0.94 )(i) 

12/31/2014

    24.04        1.79        (0.53     1.26                (2.47     0.00        0.00        (2.47

01/31/2013 - 12/31/2013

    23.88        1.33        0.76        2.09                (1.68     (0.24     0.00        (1.92

PIMCO Dynamic Income Fund (Consolidated)

                 

06/30/2016

  $ 31.38      $ 3.87      $ (3.45   $ 0.42              $ (4.25   $ (0.99   $ 0.00      $ (5.24

04/01/2015 - 06/30/2015(f)

    30.74        0.80        0.47        1.27                (0.63     0.00        0.00        (0.63 )(i) 

03/31/2015

    32.11        3.25        (0.49     2.76                (4.13     0.00        0.00        (4.13

03/31/2014

    30.69        3.70        1.24        4.94                (3.29     (0.23     0.00        (3.52

05/30/2012 - 03/31/2013

    23.88        2.79        6.50        9.29                (2.18     (0.27     0.00        (2.45

 

* Annualized
^ Reflects an amount rounding to less than one cent.
(a) 

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

(b) 

The tax characterization of distributions is determined in accordance with federal income tax regulations. See Note 2(c) in the Notes to Financial Statements for more information.

(c) 

Total investment return is calculated assuming a purchase of a share at the market price on the first day and a sale of a 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.

(d) 

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

(e) 

Fiscal year end changed from December 31st to June 30th.

(f) 

Fiscal year end changed from March 31st to June 30th.

g) 

Fiscal year end changed from October 31st to June 30th.

(h) 

Fiscal year end changed from January 31st to June 30th.

(i) 

Total distributions for the period ended June 30, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended June 30, 2015.

 

16   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


      Common Share           Ratios/Supplemental Data  
                                    Ratios to Average Net Assets  
Offering
Cost
Charged to
Paid in Capital
in Excess of  Par
    Net Assets
Value End of
Year or
Period
    Market Price
End of Year
or Period
    Total
Investment
Return(c)
           Net Assets
End of Year or
Period (000s)
    Expenses(d)     Expenses
Excluding
Interest
Expense(d)
    Net
Investment
Income
    Portfolio
Turnover
Rate
 
                 
$ N/A      $ 9.71      $ 9.72        6.91           $ 112,099        2.69     1.58     12.25     12
  N/A        10.68        10.05        (1.28             123,235        2.26     1.54     8.32     20   
  N/A        10.72        10.65        0.34                123,633        1.89        1.40        8.38        11   
  N/A        11.17        11.65        6.49                128,672        2.05        1.52        9.75        6   
  N/A        11.35        12.02        23.34                130,461        2.59        1.76        10.05        13   
  N/A        9.48        10.77        10.43                108,810        2.44        1.75        11.30        26   
                 
$ N/A      $ 9.76      $ 19.53        31.38           $ 103,627        2.75     1.82     10.56     26
  N/A        12.88        16.92        (21.82             135,468        2.34     1.72     10.35     3   
  N/A        12.82        22.27        4.05                134,594        2.30        1.78        8.29        92   
  N/A        14.72        23.67        19.44                153,393        1.94        1.67        9.62        197   
  N/A        14.32        21.95        21.57                148,170        2.64        2.10        10.75        33   
  N/A        12.57        20.18        (8.00             128,952        2.71        2.12        12.70        90   
                 
$ N/A      $ 22.59      $ 23.00        7.87           $ 338,292        2.63     1.73     9.99     16
  N/A        25.94        24.20        0.22                388,353        2.43     1.79     8.93     14   
  N/A        28.38        27.26        4.39                424,632        2.01        1.65        9.44        175   
  N/A        28.67        28.90        6.81                426,561        1.93        1.66        10.03        65   
  N/A        27.86        29.85        26.98                411,976        2.29        1.86        10.38        57   
  N/A        24.62        26.45        11.68                359,909        2.44        1.93        12.40        194   
                 
$ N/A      $ 7.89      $ 9.61        24.14           $ 332,051        1.27     0.96     9.43     39
  N/A        8.58        8.69        (5.81             357,692        1.16     0.96     8.58     17   
  N/A        8.57        9.65        5.92                355,942        1.18        0.98        10.01        90   
  N/A        9.24        10.12        (4.58             379,762        1.39        1.00        10.48        208   
  N/A        9.66        11.84        12.21                392,317        1.55        1.00        11.14        293   
  N/A        8.91        11.80        28.34                357,712        1.48        1.01        14.27        147   
                 
$ N/A      $ 20.43      $ 19.13        6.69           $   2,804,003        3.20     2.03     9.63     26
  N/A        23.00        20.18        2.23                3,155,689        2.63     1.97     6.71     31   
  (0.00 )^      22.83        20.65        2.68                3,132,146        2.36        1.91        7.29        35   
  (0.01     24.04        22.48        (2.79             3,298,673        1.52     1.42     6.06     76   
                 
$ N/A      $   26.56      $   27.57        13.75           $ 1,222,499        3.60     2.12     13.67     13
  N/A        31.38        29.21        2.87                1,426,891        2.83     2.01     10.23     5   
  N/A        30.74        29.00        9.04                1,397,987        3.12        2.12        9.98        10   
  N/A        32.11        30.32        9.62                1,458,961        3.15        2.17        11.90        18   
    (0.03     30.69        31.10        35.21                1,393,099        2.91     2.04     12.04     16   

 

  ANNUAL REPORT   JUNE 30, 2016   17


Statements of Assets and Liabilities

 

June 30, 2016

 

(Amounts in thousands, except per share amounts)   PCM Fund,
Inc.
    PIMCO
Global
StocksPLUS® &
Income
Fund
    PIMCO
Income
Opportunity
Fund
    PIMCO
Strategic
Income Fund,
Inc.
 

Assets:

       

Investments, at value

                               

Investments in securities*

  $   193,010      $   164,613      $ 557,766      $ 848,893   

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    17        1,231        220        796   

Over the counter

    0        392        2,827        2,494   

Cash

    422        2        90        79   

Deposits with counterparty

    1,596        19,201        2,479        2,154   

Foreign currency, at value

    0        53        344        485   

Receivable for investments sold

    5,553        2,345        5,176        11   

Receivable for mortgage dollar rolls

    0        0        0        268,511   

Interest and/or dividends receivable

    1,051        1,225        3,490        2,926   

Other assets

    2        2        3        3   

Total Assets

      201,651        189,064        572,395          1,126,352   

Liabilities:

       

Borrowings & Other Financing Transactions

                               

Payable for reverse repurchase agreements

  $ 86,869      $ 78,833      $ 220,193      $ 103,332   

Payable for sale-buyback transactions

    0        0        0        39,895   

Payable for mortgage dollar rolls

    0        0        0        268,511   

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    6        1,211        9        22   

Over the counter

    1,580        1,656        5,728        2,054   

Payable for investments purchased

    0        1,600        2,274        14   

Payable for TBA investments purchased

    0        0        0        370,541   

Deposits from counterparty

    0        20        2,561        6,001   

Distributions payable to common shareholders

    924        1,946        2,846        3,369   

Accrued management fees

    143        165        479        258   

Other liabilities

    30        6        13        304   

Total Liabilities

    89,552        85,437        234,103        794,301   

Net Assets

  $   112,099      $ 103,627      $ 338,292      $ 332,051   

Net Asset Consist of:

       

Shares:

                               

Par value ($0.001 per share), ($0.00001 per share), ($0.00001 per share), ($0.00001 per share)

  $ 12      $ 0      $ 0      $ 0   

Paid in capital in excess of par

    125,582        231,876        343,299        367,626   

Undistributed (overdistributed) net investment income

    4,244        (2,326     (4,500     (1,926

Accumulated undistributed net realized (loss)

    (15,925     (136,224     (7,035     (51,825

Net unrealized appreciation (depreciation)

    (1,814     10,301        6,528        18,176   

Net Assets Applicable to Common Shareholders

  $ 112,099      $ 103,627      $ 338,292      $ 332,051   

Common Shares Issued and Outstanding

    11,542        10,614        14,977        42,116   

Net Asset Value Per Common Share

  $ 9.71      $ 9.76      $ 22.59      $ 7.89   

Cost of investments in securities

  $   194,952      $   157,664      $   551,852      $   822,455   

Cost of foreign currency held

  $ 0      $ 53      $ 350      $ 469   

Cost or premiums of financial derivative instruments, net

  $ (1,628   $ (1,488   $ (5,360   $ (701

* Includes repurchase agreements of:

  $ 5,100      $ 2,005      $ 24,770      $ 12,099   

 

 

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

 

18   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Statements of Assets and Liabilities

 

June 30, 2016

 

(Amounts in thousands, except per share amounts)   PIMCO
Dynamic
Credit and
Mortgage
Income Fund
    PIMCO
Dynamic
Income Fund
 

Assets:

   

Investments, at value

               

Investments in securities*

  $   5,055,464      $   2,257,021   

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    4,504        2,039   

Over the counter

    20,666        12,378   

Cash

    737        153   

Deposits with counterparty

    103,212        29,710   

Receivable for investments sold

    66,882        5,464   

Interest and/or dividends receivable

    26,606        9,888   

Other assets

    12        5   

Total Assets

      5,278,083          2,316,658   

Liabilities:

   

Borrowings & Other Financing Transactions

               

Payable for reverse repurchase agreements

  $   2,380,836      $   1,028,000   

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    1,944        691   

Over the counter

    14,687        21,637   

Payable for investments purchased

    29,193        19,299   

Deposits from counterparty

    19,376        12,099   

Distributions payable to common shareholders

    22,513        10,148   

Overdraft due to custodian

    593        112   

Accrued management fees

    4,831        2,124   

Other liabilities

    107        49   

Total Liabilities

      2,474,080          1,094,159   

Net Assets Applicable to Common Shareholders

  $   2,804,003      $   1,222,499   

Composition of Net Assets Applicable to Common Shareholders:

   

Par value ($0.00001 per share)

  $ 1      $ 0   

Paid in capital in excess of par

    3,274,226        1,101,390   

Undistributed (overdistributed) net investment income

    40,338        35,233   

Accumulated undistributed net realized (loss)

    (233,853     (23,016

Net unrealized appreciation (depreciation)

    (276,709     108,892   

Net Assets Applicable to Common Shareholders

  $ 2,804,003      $ 1,222,499   

Common Shares Issued and Outstanding

    137,221        46,025   

Net Asset Value Per Common Share

  $ 20.43      $ 26.56   

Cost of investments in securities

  $   5,384,161      $   2,156,321   

Cost or premiums of financial derivative instruments, net

  $ (6,270   $ (31,172

* Includes repurchase agreements of:

  $ 242,219      $ 104,632   

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   19


Statements of Operations

 

Year Ended June 30, 2016                        
(Amounts in thousands)  

PCM Fund,

Inc.

   

PIMCO

Global

StocksPLUS®  &

Income

Fund

   

PIMCO

Income

Opportunity

Fund

   

PIMCO

Strategic

Income Fund,

Inc.

 

Investment Income:

       

Interest, net of foreign taxes*

  $ 17,127      $ 15,237      $ 42,980      $ 36,295   

Dividends

    5        25        1,180        14   

Total Income

    17,132        15,262        44,160        36,309   

Expenses:

       

Management fees

    1,803        2,069        5,991        3,238   

Trustee fees and related expenses

    17        18        51        49   

Interest expense

    1,271        1,067        3,158        1,035   

Miscellaneous expense

    0        1        18        10   

Total Expenses

    3,091        3,155        9,218        4,332   

Net Investment Income

    14,041        12,107        34,942        31,977   

Net Realized Gain (Loss):

       

Investments in securities

    1,799        1,107        1,587        1,374   

Exchange-traded or centrally cleared financial derivative instruments

    (307     241        (3,674     (19,203

Over the counter financial derivative instruments

    3,355        (5,653     7,197        3,046   

Foreign currency

    0        20        603        (16

Net Realized Gain (Loss)

    4,847        (4,285     5,713          (14,799

Net Change in Unrealized Appreciation (Depreciation):

       

Investments in securities

    (15,877     (12,306     (40,454     3,003   

Exchange-traded or centrally cleared financial derivative instruments

    108        (6,122     (2,667     (8,868

Over the counter financial derivative instruments

    (3,220     (275     (7,756     1,321   

Foreign currency assets and liabilities

    0        691        1,731        55   

Net Change in Unrealized (Depreciation)

      (18,989       (18,012       (49,146     (4,489

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ (101   $ (10,190   $ (8,491   $ 12,689   

* Foreign tax withholdings

  $ 0      $ 0      $ 1      $ 0   

 

 

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

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Statements of Operations

 

Year Ended June 30, 2016            
(Amounts in thousands)  

PIMCO

Dynamic

Credit and

Mortgage

Income Fund

   

PIMCO

Dynamic

Income Fund

 

Investment Income:

   

Interest, net of foreign taxes*

  $ 368,116      $ 222,967   

Dividends

    7        622   

Total Income

    368,123        223,589   

Expenses:

   

Management fees

    57,918        27,247   

Trustee fees and related expenses

    427        199   

Interest expense

    33,458        19,102   

Miscellaneous expense

    93        61   

Total Expenses

    91,896        46,609   

Net Investment Income

    276,227        176,980   

Net Realized Gain (Loss):

   

Investments in securities

    (84,858     (23,907

Exchange-traded or centrally cleared financial derivative instruments

    (25,410     3,245   

Over the counter financial derivative instruments

    25,586        20,502   

Foreign currency

    (3,641     (37

Net Realized (Loss)

    (88,323     (197

Net Change in Unrealized Appreciation (Depreciation):

   

Investments in securities

    (276,391     (135,465

Exchange-traded or centrally cleared financial derivative instruments

    8,980        (25,040

Over the counter financial derivative instruments

    (3,083     (594

Foreign currency assets and liabilities

    30,476        3,872   

Net Change in Unrealized (Depreciation)

      (240,018       (157,227

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ (52,114   $ 19,556   

* Foreign tax withholdings

  $ 12      $ 0   

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   21


Statements of Changes in Net Assets

 

    PCM Fund, Inc.            PIMCO Global StocksPLUS® & Income Fund  
(Amounts in thousands)  

Year Ended

June 30, 2016

    For the Period
January 1, 2015 -
June 30, 2015(a)
   

Year Ended

December 31, 2014

          

Year Ended

June 30, 2016

    For the Period
April 1, 2015 -
June 30,  2015(b)
   

Year Ended

March 31, 2015

 

Increase (Decrease) in Net Assets from:

             

Operations:

             

Net investment income

  $ 14,041      $ 5,058      $ 10,813              $ 12,107      $ 3,559      $ 12,039   

Net realized gain (loss)

    4,847        5,586        64                (4,285     8,310        (19,967

Net change in unrealized appreciation (depreciation)

    (18,989     (5,577     (4,000             (18,012     (5,604     10,460   

Net Increase (Decrease) in Net Assets Resulting from Operations

    (101     5,067        6,877                (10,190     6,265        2,532   

Distributions to Common Shareholders:

             

From net investment income

    (11,077     (5,537     (12,094             (21,340     (5,782     (23,021

From net realized capital gains

    0        0        0                0        0        0   

Tax basis return of capital

    0        0        0                (1,918     0        0   

Total Distributions to Common Shareholders(e)

    (11,077     (5,537 )(f)      (12,094             (23,258     (5,782 )(f)      (23,021

Common Share Transactions**:

             

Issued as reinvestment of distributions

    42        72        178                1,607        391        1,690   

Total Increase (Decrease) in Net Assets

    (11,136     (398     (5,039             (31,841     874        (18,799

Net Assets Applicable to Common Shareholders:

             

Beginning of year or period

    123,235        123,633        128,672                135,468        134,594        153,393   

End of year or period*

  $   112,099      $   123,235      $   123,633              $   103,627      $   135,468      $   134,594   

* Including undistributed (overdistributed) net investment income of:

  $ 4,244      $ (681   $ (540           $ (2,326   $ (1,169   $ (3,939

** Common Share Transactions:

             

Shares issued as reinvestment of distributions

    4        7        16                96        18        78   

 

 

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

(a) 

Fiscal year end changed from December 31st to June 30th.

(b) 

Fiscal year end changed from March 31st to June 30th.

(c) 

Fiscal year end changed from October 31st to June 30th.

(d) 

Fiscal year end changed from January 31st to June 30th.

(e) 

The tax characterization of distributions is determined in accordance with federal income tax regulations. See Note 2(c) in the Notes to Financial Statements for more information.

(f) 

Total distributions for the period ended June 30, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended June 30, 2015.

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

PIMCO Income Opportunity Fund            PIMCO Strategic Income Fund, Inc.  

Year Ended

June 30, 2016

    For the Period
November 1, 2014 -
June 30, 2015(c)
   

Year Ended

October 31, 2014

          

Year Ended

June 30, 2016

    For the Period
February 1, 2015 -
June 30, 2015(d)
   

Year Ended

January 31, 2015

 
           
           
$ 34,942      $ 23,106      $ 40,467              $ 31,977      $ 12,571      $ 37,303   
  5,713        (3,967     18,425                (14,799     11,358        15,398   
  (49,146     (9,047     (20,170             (4,489     (7,166     (38,494
 
 
    
(8,491
 
    10,092        38,722                12,689        16,763        14,207   
           
  (34,129     (34,865     (42,972             (41,907     (16,651     (42,226
  (7,634     (11,498     0                0        0        0   
  0        (224     0                0        0        0   
  (41,763     (46,587 )(f)      (42,972             (41,907     (16,651 )(f)      (42,226
           
  193        216        2,321                3,577        1,638        4,199   
  (50,061     (36,279     (1,929             (25,641     1,750        (23,820
           
  388,353        424,632        426,561                357,692        355,942        379,762   
$   338,292      $   388,353      $   424,632              $   332,051      $   357,692      $   355,942   
$ (4,500   $ (5,419   $ 6,094              $ (1,926   $ 3,365      $ 2,692   
           
  9        8        82                416        182        432   

 

  ANNUAL REPORT   JUNE 30, 2016   23


Consolidated Statements of Changes in Net Assets

 

    PIMCO Dynamic Credit and Mortgage Income Fund     PIMCO Dynamic Income Fund  
(Amounts in thousands)  

Year Ended

June 30, 2016

   

For the Period

January 1, 2015 -

June 30, 2015(a)

    Year Ended
December 31, 2014
   

Year Ended

June 30, 2016

   

For the Period

April 1, 2015 -

June 30, 2015(b)

   

Year Ended

March 31, 2015

 

Increase (Decrease) in Net Assets from:

           

Operations:

           

Net investment income

  $ 276,227      $ 104,043      $ 245,912      $ 176,980      $ 36,172      $ 147,564   

Net realized gain (loss)

    (88,323     29,622        12,922        (197     37,320        76,891   

Net change in unrealized appreciation (depreciation)

    (240,018     18,523        (85,852     (157,227     (15,937     (99,042

Net Increase (Decrease) in Net Assets Resulting from Operations

    (52,114     152,188        172,982        19,556        57,555        125,413   

Distributions to Common Shareholders:

           

From net investment income

    (299,572     (128,645     (339,486     (193,676     (28,651     (187,696

From net realized capital gains

    0        0        0        (45,024     0        0   

Total Distributions to Common Shareholders(c)

    (299,572     (128,645 )(d)      (339,486     (238,700     (28,651 )(d)      (187,696

Common Share Transactions**:

           

Offering costs charged to paid in capital in excess of par

    0        0        (23     0        0        0   

Issued as reinvestment of distributions

    0        0        0        14,752        0        1,309   

Net increase (decrease) resulting from common share transactions

    0        0        (23     14,752        0        1,309   

Total Increase (Decrease) in Net Assets

    (351,686     23,543        (166,527     (204,392     28,904        (60,974

Net Assets Applicable to Common Shareholders:

           

Beginning of year or period

    3,155,689        3,132,146        3,298,673        1,426,891        1,397,987        1,458,961   

End of year or period*

  $   2,804,003      $   3,155,689      $   3,132,146      $   1,222,499      $   1,426,891      $   1,397,987   

* Including undistributed (overdistributed) net investment income of:

  $ 40,338      $ (9,006   $ (24,101   $ 35,233      $ 35,117      $ 22,795   

** Common Share Transactions:

           

Shares issued as reinvestment of distributions

    0        0        0        546        0        41   

 

 

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

(a) 

Fiscal year end changed from December 31st to June 30th.

(b) 

Fiscal year end changed from March 31st to June 30th.

(c) 

The tax characterization of distributions is determined in accordance with federal income tax regulations. See Note 2(c) in the Notes to Financial Statements for more information.

(d) 

Total distributions for the period ended June 30, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended June 30, 2015.

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Statements of Cash Flows

 

Year Ended June 30, 2016                        
(Amounts in thousands)   PCM Fund,
Inc.
    PIMCO
Global
StocksPLUS® &
Income
Fund
    PIMCO
Income
Opportunity
Fund
    PIMCO
Strategic
Income Fund,
Inc.
 

Cash Flows Provided by Operating Activities:

       

Net increase (decrease) in net assets resulting from operations

  $ (101   $ (10,190   $ (8,491   $ 12,689   

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

       

Purchases of long-term securities

    (36,851     (42,314     (87,780     (328,129

Proceeds from sales of long-term securities

    45,783        50,220        140,747        391,185   

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

    (6,451     5,806        1,577        4,408   

(Increase) decrease in deposits with counterparty

    (974     (3,659     (663     6,808   

(Increase) decrease in receivable for investments sold

    (2,964     (210     4,284        3,061   

Decrease in interest and/or dividends receivable

    160        16        1,121        771   

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

    (200     (5,297     (6,438     (28,663

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

    91        (7,583     (3,224     3,004   

(Increase) decrease in other assets

    0        0        (1     3   

Increase (decrease) in payable for investments purchased

    (7     1,112        1,162        48,778   

Increase (decrease) in deposits from counterparty

    0        (197     (658     4,331   

(Decrease) in accrued management fees

    (17     (26     (133     (23

Proceeds from foreign currency transactions

    0        9        540        39   

(Decrease) in other liabilities

    (58     (53     (81     (313

Net Realized (Gain) Loss

                               

Investments in securities

    (1,799     (1,107     (1,587     (1,374

Exchange-traded or centrally cleared financial derivative instruments

    307        (241     3,674        19,203   

Over the counter financial derivative instruments

    (3,355     5,653        (7,197     (3,046

Foreign currency

    0        (20     (603     16   

Net Change in Unrealized (Appreciation) Depreciation

                               

Investments in securities

    15,877        12,306        40,454        (3,003

Exchange-traded or centrally cleared financial derivative instruments

    (108     6,122        2,667        8,868   

Over the counter financial derivative instruments

    3,220        275        7,756        (1,321

Foreign currency assets and liabilities

    0        (691     (1,731     (55

Net amortization (accretion) on investments

    (3     182        (2,756     (235

Net Cash Provided by Operating Activities

    12,550        10,113        82,639        137,002   

Cash Flows (Used for) Financing Activities:

       

Cash dividend paid*

    (11,034     (21,633     (41,568     (38,297

Proceeds from reverse repurchase agreements

    281,055        259,829        857,220        621,881   

Payments on reverse repurchase agreements

      (282,231       (249,140       (898,618     (656,749

Proceeds from sale-buyback transactions

    0        0        0        4,284,091   

Payments on sale-buyback transactions

    0        0        0          (4,348,000

Proceeds from mortgage dollar rolls

    0        0        0        4,217,534   

Payments on mortgage dollar rolls

    0        0        0        (4,217,380

Proceeds from deposits from counterparty

    430        428        1,777        0   

Payments on deposits from counterparty

    (430     (428     (2,325     0   

Net Cash (Used for) Financing Activities

    (12,210     (10,944     (83,514     (136,920

Net Increase (Decrease) in Cash and Foreign Currency

    340        (831     (875     82   

Cash and Foreign Currency:

       

Beginning of year

    82        886        1,309        482   

End of year

  $ 422      $ 55      $ 434      $ 564   

* Reinvestment of distributions

  $ 42      $ 1,607      $ 193      $ 3,577   

Supplemental Disclosure of Cash Flow Information:

       

Interest expense paid during the year

  $ 1,108      $ 916      $ 2,851      $ 1,157   

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   25


Consolidated Statements of Cash Flows

 

Year Ended June 30, 2016            
(Amounts in thousands)   PIMCO
Dynamic
Credit and
Mortgage
Income Fund
    PIMCO
Dynamic
Income Fund
 

Cash Flows Provided by Operating Activities:

   

Net increase (decrease) in net assets resulting from operations

  $ (52,114   $ 19,556   

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

   

Purchases of long-term securities

    (1,723,845     (514,007

Proceeds from sales of long-term securities

    1,664,438        454,082   

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

    (25,992     (4,624

(Increase) in deposits with counterparty

    (83,354     (4,023

Decrease in receivable for investments sold

    109,335        2,153   

Decrease in interest and/or dividends receivable

    9,952        4,406   

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

    (16,810     (22,820

Proceeds from over the counter financial derivative instruments

    18,645        24,395   

Decrease in other assets

    4        3   

Increase (decrease) in payable for investments purchased

    (68,128     17,398   

(Decrease) in deposits from counterparty

    (8,048     (20

(Decrease) in accrued management fees

    (1,327     (308

(Payments on) foreign currency transactions

    (4,675     (68

(Decrease) in other liabilities

    (216     (110

Net Realized (Gain) Loss

               

Investments in securities

    84,858        23,907   

Exchange-traded or centrally cleared financial derivative instruments

    25,410        (3,245

Over the counter financial derivative instruments

    (25,586     (20,502

Foreign currency

    3,641        37   

Net Change in Unrealized (Appreciation) Depreciation

               

Investments in securities

    276,391        135,465   

Exchange-traded or centrally cleared financial derivative instruments

    (8,980     25,040   

Over the counter financial derivative instruments

    3,083        594   

Foreign currency assets and liabilities

    (30,476     (3,872

Net amortization (accretion) on investments

    (29,295     (14,489

Net Cash Provided by Operating Activities

    116,911        118,948   

Cash Flows (Used for) Financing Activities:

   

Increase in overdraft due to custodian

    593        112   

Cash dividend paid*

    (298,500     (223,351

Proceeds from reverse repurchase agreements

    8,580,639        3,211,883   

Payments on reverse repurchase agreements

      (8,425,520       (3,120,138

Proceeds from deposits from counterparty

    50,713        4,890   

Payments on deposits from counterparty

    (48,186     (6,451

Net Cash (Used for) Financing Activities

    (140,261     (133,055

Net (Decrease) in Cash and Foreign Currency

    (23,350     (14,107

Cash and Foreign Currency:

   

Beginning of year

    24,087        14,260   

End of year

  $ 737      $ 153   

* Reinvestment of distributions

  $ 0      $ 14,752   

Supplemental Disclosure of Cash Flow Information:

   

Interest expense paid during the year

  $ 26,852      $ 16,179   

 

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

 

26   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Schedule of Investments PCM Fund, Inc.

 

June 30, 2016

 

        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 172.2%   
BANK LOAN OBLIGATIONS 4.9%   

Cactus Wellhead LLC

  

7.000% due 07/31/2020

  $   491   $     333   

Energy Future Intermediate Holding Co. LLC

  

4.250% due 12/19/2016

    2,274       2,274   

iHeartCommunications, Inc.

  

7.210% due 01/30/2019

    3,000       2,205   

Sequa Corp.

  

5.250% due 06/19/2017

    826       650   
       

 

 

 

Total Bank Loan Obligations (Cost $6,532)

    5,462   
       

 

 

 
CORPORATE BONDS & NOTES 27.5%   
BANKING & FINANCE 10.0%   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

    3,701       3,701   

Cantor Fitzgerald LP

  

7.875% due 10/15/2019 (i)

    740       832   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023 (i)

    600       610   

Exeter Finance Corp.

  

9.750% due 05/20/2019

    800       754   

Jefferies Finance LLC

  

7.500% due 04/15/2021

    187       169   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020 (i)

    800       704   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (g)

    1,435       1,335   

Navient Corp.

  

5.500% due 01/15/2019 (i)

    845       852   

8.450% due 06/15/2018 (i)

    711       771   

Springleaf Finance Corp.

  

8.250% due 12/15/2020

    800       804   

Toll Road Investors Partnership LP

  

0.000% due 02/15/2045 (d)

    2,631       678   
       

 

 

 
            11,210   
       

 

 

 
INDUSTRIALS 15.4%   

Ancestry.com Holdings LLC (9.625% Cash or 10.375% PIK)

   

9.625% due 10/15/2018 (b)(i)

    255       259   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

    72       54   

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

  

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

    1,017       864   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 (f)(i)

    3,143       2,907   

9.000% due 02/15/2020 (f)

    182       169   

California Resources Corp.

  

8.000% due 12/15/2022

    573       408   

Chesapeake Energy Corp.

  

3.878% due 04/15/2019

    20       15   

CVS Pass-Through Trust

  

5.880% due 01/10/2028 (i)

    1,361       1,537   

7.507% due 01/10/2032 (i)

    851       1,073   

Diamond 1 Finance Corp.

  

5.450% due 06/15/2023

    26       27   

6.020% due 06/15/2026

    25       26   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019 (i)

    1,900       827   

Global Geophysical Services, Inc.

  

10.500% due 05/01/2017 ^

    285       0   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019 (i)

    1,700       1,504   

JC Penney Corp., Inc.

  

5.875% due 07/01/2023

    100       101   

Prime Security Services Borrower LLC

  

9.250% due 05/15/2023

    800       850   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Reynolds Group Issuer, Inc.

  

4.127% due 07/15/2021

  $   100   $     101   

7.000% due 07/15/2024

    100       103   

Scientific Games International, Inc.

  

10.000% due 12/01/2022 (i)

    650       531   

Sequa Corp.

  

7.000% due 12/15/2017

    1,140       302   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017 (i)

    2,290       2,256   

UAL Pass-Through Trust

  

6.636% due 01/02/2024 (i)

    592       629   

9.750% due 07/15/2018 (i)

    323       335   

10.400% due 05/01/2018 (i)

    168       173   

UCP, Inc.

  

8.500% due 10/21/2017

    1,300       1,309   

Warren Resources, Inc.

  

9.000% due 08/01/2022 ^

    1,000       11   

Westmoreland Coal Co.

  

8.750% due 01/01/2022 (i)

    1,264       951   
       

 

 

 
          17,322   
       

 

 

 
UTILITIES 2.1%   

Frontier Communications Corp.

  

10.500% due 09/15/2022

    150       159   

11.000% due 09/15/2025

    150       157   

Illinois Power Generating Co.

  

6.300% due 04/01/2020 (i)

    1,515       599   

7.950% due 06/01/2032 (i)

    1,024       399   

Sprint Corp.

  

7.125% due 06/15/2024 (i)

    1,246       992   
       

 

 

 
          2,306   
       

 

 

 

Total Corporate Bonds & Notes (Cost $35,306)

      30,838   
       

 

 

 
MUNICIPAL BONDS & NOTES 1.2%   
ARKANSAS 0.5%   

Little Rock Municipal Property Owners Multipurpose Improvement District No. 10, Arkansas Special Tax Bonds, Series 2007

    

7.200% due 03/01/2032

    515       501   
       

 

 

 
WEST VIRGINIA 0.7%   

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

   

7.467% due 06/01/2047

    845       805   
       

 

 

 

Total Municipal Bonds & Notes (Cost $1,306)

      1,306   
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.1%   

Freddie Mac

       

0.100% due 05/25/2020 (a)

    14,213       40   

0.734% due 01/25/2021 (a)

    2,686       61   

0.841% due 10/25/2020 (a)

    8,703       219   

3.615% due 06/25/2041 (a)(i)

    10,500       1,640   

7.996% due 12/25/2027

    450       430   
       

 

 

 

Total U.S. Government Agencies
(Cost $2,227)

      2,390   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 66.6%   

Adjustable Rate Mortgage Trust

  

2.956% due 01/25/2036 ^

    258       221   

Banc of America Alternative Loan Trust

  

6.246% due 04/25/2037 ^

    346       298   

Banc of America Commercial Mortgage Trust

  

5.695% due 07/10/2046

    400       390   

Banc of America Funding Trust

  

2.907% due 12/20/2034

    486       450   

3.195% due 03/20/2036

    161       144   

5.806% due 03/25/2037 ^

    164       143   

7.000% due 10/25/2037 ^

    906       554   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Banc of America Mortgage Trust

  

2.871% due 11/25/2034

  $   346   $     345   

3.100% due 06/20/2031

    464       473   

3.396% due 06/25/2035

    219       213   

BCAP LLC Trust

  

0.638% due 07/26/2036

    87       67   

BCRR Trust

  

5.858% due 07/17/2040

    1,000       1,022   

Bear Stearns ALT-A Trust

  

0.623% due 04/25/2037

    1,169       871   

2.826% due 11/25/2036 ^

    1,030       711   

2.860% due 08/25/2036 ^

    847       730   

2.952% due 05/25/2036

    58       41   

2.999% due 05/25/2036 ^

    382       292   

3.062% due 08/25/2036 ^

    415       307   

3.095% due 01/25/2047

    72       53   

3.828% due 09/25/2034

    225       222   

4.012% due 07/25/2035 ^

    192       159   

Bear Stearns Commercial Mortgage Securities Trust

  

5.910% due 06/11/2040 (i)

    1,503       1,536   

BRAD Resecuritization Trust

  

2.180% due 03/12/2021

    2,424       178   

6.550% due 03/12/2021

    453       468   

CBA Commercial Small Balance Commercial Mortgage

  

5.540% due 01/25/2039 ^

    638       474   

Chase Mortgage Finance Trust

  

6.000% due 03/25/2037 ^

    318       274   

Citigroup Commercial Mortgage Trust

  

0.816% due 05/15/2043 (a)

    1,175       0   

5.901% due 12/10/2049 (i)

    2,500       2,574   

Citigroup Mortgage Loan Trust, Inc.

  

2.777% due 11/25/2036 ^

    237       207   

2.861% due 10/25/2035

    871       704   

3.022% due 08/25/2035 ^

    145       136   

3.561% due 11/25/2035

    1,916       1,072   

Citigroup Mortgage Loan Trust, Inc. Mortgage Pass-Through Certificates

   

2.909% due 09/25/2035 ^

    290       249   

CitiMortgage Alternative Loan Trust

  

5.500% due 04/25/2022 ^

    61       62   

COBALT Commercial Mortgage Trust

  

5.223% due 08/15/2048 (i)

    1,007       1,010   

Commercial Mortgage Trust

  

6.302% due 07/10/2046 (i)

    690       755   

Countrywide Alternative Loan Trust

  

0.733% due 02/25/2037

    342       251   

0.743% due 02/25/2036 ^

    1,056       670   

1.437% due 12/25/2035 (i)

    1,862         1,460   

5.500% due 03/25/2035

    843       687   

6.000% due 11/25/2035 ^

    221       84   

6.000% due 04/25/2036 ^(i)

    4,599       3,386   

Countrywide Home Loan Mortgage Pass-Through Trust

  

1.093% due 03/25/2035

    248       188   

2.592% due 02/20/2036 ^

    19       17   

2.699% due 09/20/2036 ^

    199       147   

2.774% due 09/25/2047 ^

    802       695   

6.000% due 05/25/2037 ^

    448       371   

Credit Suisse First Boston Mortgage Securities Corp.

  

7.000% due 02/25/2033

    93       98   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

5.896% due 04/25/2036

    330       234   

6.000% due 07/25/2036

    1,850       1,377   

6.500% due 05/25/2036 ^

    223       139   

FFCA Secured Franchise Loan Trust

  

0.961% due 09/18/2027 (a)

    2,069       51   

First Horizon Alternative Mortgage Securities Trust

  

2.513% due 08/25/2035 ^

    116       28   

First Horizon Mortgage Pass-Through Trust

  

2.936% due 04/25/2035

    108       106   

GS Mortgage Securities Trust

  

1.585% due 08/10/2043 (a)

    14,514       706   

2.658% due 05/10/2045 (a)

    5,884       474   

6.215% due 08/10/2043 (i)

    1,670       1,759   

GSR Mortgage Loan Trust

  

2.903% due 03/25/2047 (i)

    1,718       1,427   
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   27


Schedule of Investments PCM Fund, Inc. (Cont.)

 

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

HarborView Mortgage Loan Trust

  

0.698% due 01/19/2036

  $   1,018   $     693   

IndyMac Mortgage Loan Trust

  

1.253% due 11/25/2034

    165       138   

3.159% due 05/25/2036

    254       181   

3.356% due 06/25/2037

    625       579   

JPMorgan Alternative Loan Trust

  

6.500% due 03/25/2036

    1,578       1,293   

JPMorgan Chase Commercial Mortgage Securities Corp.

  

1.594% due 03/12/2039 (a)

    533       6   

JPMorgan Chase Commercial Mortgage Securities Trust

  

0.628% due 02/15/2046 (a)

    61,000       1,477   

5.794% due 02/12/2051 (i)

    1,056       1,097   

5.887% due 02/12/2049 (i)

    1,359       1,390   

6.131% due 02/15/2051

    16       16   

6.450% due 05/12/2034 (i)

    2,111       2,147   

JPMorgan Commercial Mortgage-Backed Securities Trust

   

5.702% due 03/18/2051 (i)

    4,100       4,148   

JPMorgan Mortgage Trust

  

2.948% due 07/25/2035

    144       144   

LB Commercial Mortgage Trust

  

5.600% due 10/15/2035

    177       180   

6.118% due 07/15/2044 (i)

    814       845   

LB-UBS Commercial Mortgage Trust

  

5.347% due 11/15/2038 (i)

    806       808   

5.407% due 11/15/2038 (i)

    710       555   

5.518% due 02/15/2040

    200       203   

5.562% due 02/15/2040 (i)

    720       543   

Lehman Mortgage Trust

  

5.000% due 08/25/2021 ^

    486       475   

5.930% due 04/25/2036

    267       238   

6.000% due 05/25/2037 ^

    580       563   

Luminent Mortgage Trust

  

0.616% due 12/25/2036

    996       796   

MASTR Adjustable Rate Mortgages Trust

  

2.904% due 11/25/2035 ^

    695       528   

MASTR Asset Securitization Trust

  

6.000% due 06/25/2036 ^

    726       697   

Merrill Lynch Mortgage Investors Trust

  

0.873% due 07/25/2030

    311       284   

1.113% due 11/25/2029

    159       154   

2.790% due 11/25/2035

    275       268   

Morgan Stanley Capital Trust

  

0.435% due 11/12/2049 (a)

    46,306       80   

5.447% due 02/12/2044 (i)

    2,000         2,024   

5.692% due 04/15/2049

    315       321   

5.809% due 12/12/2049 (i)

    462       480   

Morgan Stanley Capital, Inc. Trust

  

6.010% due 11/15/2030 (i)

    777       794   

Morgan Stanley Mortgage Loan Trust

  

2.941% due 01/25/2035 ^

    329       160   

6.000% due 08/25/2037 ^

    362       315   

Morgan Stanley Resecuritization Trust

  

5.320% due 03/26/2037

    5,538       4,327   

Regal Trust

  

2.178% due 09/29/2031

    196       182   

Residential Accredit Loans, Inc. Trust

  

3.982% due 01/25/2036 ^

    558       449   

6.000% due 08/25/2035 ^

    368       334   

6.500% due 09/25/2037 ^

    372       321   

Residential Asset Securitization Trust

  

6.000% due 03/25/2037 ^

    301       204   

Residential Funding Mortgage Securities, Inc. Trust

  

6.000% due 06/25/2036 ^

    398       362   

Royal Bank of Scotland Capital Funding Trust

  

5.223% due 08/16/2048 (i)

    1,000       1,002   

5.336% due 05/16/2047 (i)

    1,000       1,005   

6.068% due 02/17/2051

    2,744       2,795   

Structured Adjustable Rate Mortgage Loan Trust

  

2.821% due 01/25/2036 ^(i)

    457       345   

3.073% due 04/25/2036 ^

    552       425   

4.361% due 11/25/2036 ^

    188       180   

4.829% due 09/25/2036 ^

    347       304   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Structured Asset Mortgage Investments Trust

  

0.663% due 08/25/2036 ^

  $   1,157   $     870   

Structured Asset Securities Corp. Trust

  

5.000% due 05/25/2035

    63       63   

TBW Mortgage-Backed Trust

  

6.000% due 07/25/2036 ^

    201       146   

Wachovia Bank Commercial Mortgage Trust

  

0.835% due 10/15/2041 (a)

    2,409       1   

5.509% due 04/15/2047 (i)

    823       835   

WaMu Commercial Mortgage Securities Trust

  

5.972% due 03/23/2045 (i)

    1,000       999   

WaMu Mortgage Pass-Through Certificates Trust

  

0.943% due 06/25/2044

    693       603   

2.506% due 12/25/2036 ^(i)

    553       481   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

6.500% due 08/25/2036 ^(i)

    1,960       1,432   

Wells Fargo Alternative Loan Trust

  

5.500% due 07/25/2022

    49       49   

Wells Fargo-RBS Commercial Mortgage Trust

  

0.990% due 02/15/2044 (a)(i)

    18,222       544   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities
(Cost $67,237)

      74,638   
       

 

 

 
ASSET-BACKED SECURITIES 58.8%   

Asset-Backed Securities Corp. Home Equity Loan Trust

  

1.548% due 02/25/2035 (i)

    2,676       2,196   

2.178% due 12/25/2034 (i)

    2,174       1,939   

3.698% due 06/21/2029

    156       149   

Associates Manufactured Housing Pass-Through Certificates

   

7.150% due 03/15/2028

    425       507   

Bayview Financial Acquisition Trust

  

0.734% due 12/28/2036

    203       196   

Bear Stearns Asset-Backed Securities Trust

  

0.833% due 04/25/2036

    3,000       1,907   

0.833% due 06/25/2036

    28       27   

2.922% due 07/25/2036

    412       389   

5.500% due 12/25/2035

    77       65   

Bombardier Capital Mortgage Securitization Corp.

  

7.830% due 06/15/2030

    1,190       657   

Centex Home Equity Loan Trust

  

0.953% due 01/25/2035

    1,558       1,258   

Citigroup Mortgage Loan Trust, Inc.

  

0.613% due 12/25/2036 (i)

    2,174       1,401   

0.673% due 12/25/2036

    1,119       625   

0.713% due 03/25/2037 (i)

    5,454       4,196   

0.889% due 11/25/2045 (i)

    5,300       4,868   

Conseco Finance Securitizations Corp.

  

7.960% due 05/01/2031

    391       288   

9.163% due 03/01/2033

    960       857   

Countrywide Asset-Backed Certificates

  

0.583% due 12/25/2036 ^

    1,659       1,502   

0.593% due 06/25/2035 (i)

    3,168       2,296   

0.593% due 01/25/2037

    1,147       776   

0.593% due 06/25/2047 ^(i)

    3,579       2,577   

0.603% due 04/25/2047 (i)

    1,584       1,297   

0.653% due 06/25/2037 ^(i)

    1,000       681   

0.653% due 09/25/2047

    1,188       753   

0.693% due 05/25/2036 (i)

    9,175       3,992   

2.103% due 06/25/2035 (i)

    4,000       3,026   

5.329% due 10/25/2032 ^(i)

    948       789   

EMC Mortgage Loan Trust

  

1.521% due 02/25/2041

    344       336   

Fremont Home Loan Trust

  

0.633% due 04/25/2036 (i)

    1,606       1,402   

GE Capital Mortgage Services, Inc. Trust

  

6.705% due 04/25/2029

    151       130   

GSAMP Trust

  

2.253% due 06/25/2035 (i)

    2,200       1,808   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

HSI Asset Securitization Corp. Trust

  

0.563% due 04/25/2037

  $   3,905   $     2,216   

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

   

0.693% due 04/25/2037 (i)

    5,802       3,708   

Keystone Owner Trust

  

9.000% due 01/25/2029

    56       36   

Lehman XS Trust

       

5.420% due 11/25/2035 ^

    374       373   

MASTR Asset-Backed Securities Trust

  

0.563% due 08/25/2036 (i)

    3,861       1,896   

Morgan Stanley ABS Capital, Inc. Trust

  

1.233% due 12/25/2034

    216       175   

Renaissance Home Equity Loan Trust

  

7.238% due 09/25/2037 ^(i)

    4,337       2,544   

Residential Asset Mortgage Products Trust

  

1.193% due 09/25/2032

    51       45   

1.548% due 12/25/2033

    811       747   

Residential Asset Securities Corp. Trust

  

0.913% due 06/25/2031 (i)

    1,748       1,636   

1.143% due 08/25/2035 (i)

    4,350       3,035   

Securitized Asset-Backed Receivables LLC Trust

  

0.903% due 10/25/2035 (i)

    5,500       4,246   

Southern Pacific Secured Asset Corp.

  

0.793% due 07/25/2029

    20       19   

Structured Asset Investment Loan Trust

  

2.178% due 10/25/2034

    1,986       1,670   

4.953% due 10/25/2033

    68       45   

UCFC Manufactured Housing Contract

   

7.900% due 01/15/2028 ^

    560       547   

UPS Capital Business Credit

       

6.177% due 04/15/2026

    1,856       37   
       

 

 

 

Total Asset-Backed Securities
(Cost $69,833)

        65,865   
       

 

 

 
        SHARES          
COMMON STOCKS 0.1%        
ENERGY 0.1%        

SemGroup Corp. ‘A’

    2,654       86   
       

 

 

 

Total Common Stocks (Cost $74)

        86   
       

 

 

 
WARRANTS 0.0%        
INDUSTRIALS 0.0%        

Global Geophysical Services, Inc. - Exp. 05/01/2049

    1,239       0   
       

 

 

 

Total Warrants (Cost $12)

        0   
       

 

 

 
SHORT-TERM INSTRUMENTS 11.0%   
REPURCHASE AGREEMENTS (h) 4.5%  
          5,100   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
         
SHORT-TERM NOTES 5.0%   

Federal Home Loan Bank

  

0.279% due 07/01/2016 (d)(e)

  $   1,100       1,100   

0.294% due 07/06/2016 -
07/08/2016 (d)(e)

    300       300   

0.300% due 07/08/2016 (d)(e)

    300       300   

0.314% due 08/05/2016 -
08/11/2016 (d)(e)

    2,400       2,399   

0.316% due 08/05/2016 (d)(e)

    100       100   

0.325% due 08/10/2016 -
08/12/2016 (d)(e)

    1,100       1,100   

0.340% due 07/07/2016 (d)(e)

    200       200   

0.345% due 07/29/2016 (d)(e)

    100       100   
       

 

 

 
            5,599   
       

 

 

 
 

 

28   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

       

PRINCIPAL
AMOUNT
(000S)

      MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 1.5%   

0.152% due
07/21/2016 (c)(d)(l)

  $   1,726   $     1,726   
       

 

 

 
Total Short-Term Instruments
(Cost $12,425)
    12,425   
       

 

 

 
       
Total Investments in Securities (Cost $194,952)     193,010   
       
Total Investments 172.2%
(Cost $194,952)
  $       193,010   

Financial Derivative
Instruments (j)(k) (1.4)%

(Cost or Premiums, net $(1,628))

    (1,569
Other Assets and Liabilities, net (70.8)%     (79,342
       

 

 

 
Net Assets 100.0%   $     112,099   
       

 

 

 

    

    

 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Payment in-kind security.
(c) Coupon represents a weighted average yield to maturity.
(d) Zero coupon security.
(e) Coupon represents a yield to maturity.
(f) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(g)  RESTRICTED SECURITIES:

 

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

KGH Intermediate Holdco LLC

   8.500%     08/08/2019        08/07/2014        $    1,415      $     1,335        1.19%   
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

BCY

  0.750%     06/30/2016        07/01/2016      $     5,100      U.S. Treasury Notes 1.250% due 06/30/2023   $ (5,209   $ 5,100      $ 5,100   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  $     (5,209   $     5,100      $     5,100   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate (3)
    Borrowing
Date
   

Maturity

Date

   

Amount

Borrowed (3)

   

Payable for

Reverse

Repurchase

Agreements

 

BCY

    (0.250 )%      02/18/2016        TBD  (2)    $ (268   $ (268
    0.900        11/24/2015        TBD  (2)      (1,512     (1,520
    1.880        04/07/2016        07/05/2016        (321     (322
    1.904        07/05/2016        10/05/2016        (327     (327
    2.125        04/01/2016        07/01/2016        (4,008     (4,030
    2.146        07/01/2016        10/03/2016        (2,871     (2,871
    2.181        06/03/2016        09/06/2016        (1,141     (1,143
    2.475        10/01/2015        10/03/2016        (2,258     (2,272

BOS

    2.265        07/05/2016        08/05/2016        (1,782     (1,782
    2.531        04/08/2016        07/05/2016        (1,782     (1,793

DEU

    1.400        04/04/2016        07/05/2016        (294     (295
    1.400        04/08/2016        07/08/2016        (2,062     (2,069
    1.400        04/28/2016        07/28/2016        (1,115     (1,118
    1.400        05/03/2016        08/03/2016        (1,097     (1,099
    1.450        06/01/2016        09/01/2016            (2,293         (2,296
    1.500        06/09/2016        09/09/2016        (956     (957
    1.550        07/05/2016        10/05/2016        (327     (327

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   29


Schedule of Investments PCM Fund, Inc. (Cont.)

 

Counterparty   Borrowing
Rate (3)
    Borrowing
Date
   

Maturity

Date

   

Amount

Borrowed (3)

   

Payable for

Reverse

Repurchase

Agreements

 

FOB

    2.195     06/10/2016        07/08/2016      $ (1,171   $ (1,172

GSC

    1.846        06/09/2016        07/08/2016        (910     (911

JPS

    1.382        05/09/2016        08/08/2016        (1,421     (1,424
    1.431        06/03/2016        09/06/2016        (1,376     (1,378
    1.578        04/14/2016        07/08/2016            (1,273         (1,277
    2.181        06/03/2016        09/06/2016        (1,556     (1,559

MSC

    1.600        04/19/2016        07/19/2016        (3,537     (3,548

RBC

    1.630        06/01/2016        12/01/2016        (588     (589

RDR

    1.060        05/27/2016        08/24/2016        (746     (747
    1.670        02/03/2016        08/03/2016        (891     (897
    1.930        05/23/2016        11/22/2016        (1,067     (1,069
    2.120        02/03/2016        08/03/2016        (786     (793

RTA

    1.732        07/27/2015        07/26/2016        (3,254     (3,307
    1.917        04/06/2016        10/07/2016        (2,307     (2,318
    2.055        02/04/2016        02/03/2017        (1,820     (1,835
    2.209        04/15/2016        04/13/2017        (2,566     (2,578
    2.211        03/15/2016        03/14/2017        (971     (977
    2.224        05/09/2016        05/08/2017        (2,643     (2,652
    2.227        05/12/2016        05/11/2017        (5,422     (5,439
    2.230        05/09/2016        05/08/2017        (1,474     (1,479
    2.231        03/15/2016        03/14/2017        (1,373     (1,382
    2.276        05/27/2016        11/28/2016        (828     (830

SAL

    1.427        04/07/2016        07/05/2016        (2,229     (2,236
    1.476        05/19/2016        08/19/2016        (1,776     (1,779
    1.478        05/13/2016        08/15/2016        (2,180     (2,184
    1.537        05/02/2016        08/02/2016        (2,193     (2,199

SOG

    1.290        04/14/2016        07/14/2016        (863     (865
    1.310        06/01/2016        09/01/2016        (660     (661
    1.350        05/24/2016        08/24/2016        (704     (705
    2.350        03/11/2016        09/09/2016        (1,196     (1,205

UBS

    1.530        04/20/2016        07/20/2016        (657     (659
    1.530        04/21/2016        07/21/2016        (1,156     (1,159
    2.080        05/09/2016        08/09/2016        (2,597     (2,605
    2.104        05/20/2016        08/22/2016        (3,627     (3,636
    2.133        05/04/2016        08/04/2016            (2,084     (2,091
    2.154        05/20/2016        08/22/2016        (2,229     (2,235
         

 

 

 

Total Reverse Repurchase Agreements

  

    $     (86,869
         

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(84,229) at a weighted average interest rate of 1.478%.

 

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 as of June 30, 2016:

 

(i) Securities with an aggregate market value of $102,905 and cash of $1,110 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

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
    Net Exposure  (4)  

Global/Master Repurchase Agreement

  

BCY

  $ 5,100      $ (12,753   $ 0       $ (7,653   $ 8,435      $ 782   

BOS

    0        (3,575     0         (3,575     2,008            (1,567

DEU

    0        (8,161     0         (8,161     8,702        541   

FOB

    0        (1,172     0         (1,172     1,808        636   

GSC

    0        (911     0         (911     1,223        312   

JPS

    0        (5,638     0         (5,638     6,597        959   

MSC

    0        (3,548     0         (3,548     4,215        667   

RBC

    0        (589     0         (589     651        62   

RDR

    0        (3,506     0         (3,506     4,007        501   

RTA

    0        (22,797     0             (22,797         31,198        8,401   

SAL

    0        (8,398     0         (8,398     9,678        1,280   

SOG

    0        (3,436     0         (3,436     4,099        663   

UBS

    0        (12,385     0         (12,385     15,904        3,519   
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     5,100      $     (86,869   $     0          
 

 

 

   

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

30   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

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

  

Asset-Backed Securities

  $ 0      $ (5,391   $ (11,771   $ (14,516   $ (31,678

Corporate Bonds & Notes

    0        (6,165     (6,465     (2,377     (15,007

Non-Agency Mortgage-Backed Securities

        (4,030     (9,177     (12,212     (8,315     (33,734

U.S. Government Agencies

    0        0        (1,143     0        (1,143
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $ (4,030   $     (20,733   $     (31,591   $     (25,208   $ (81,562
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

  $     (81,562
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(5,307) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

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

Pay

 

3-Month USD-LIBOR

    2.000     12/16/2020      $ 1,900      $ 89      $ 35      $ 0       $ 0   

Pay

 

3-Month USD-LIBOR

    2.750        06/17/2025            3,620        445        233        0         (6

Receive

 

3-Month USD-LIBOR

    2.500        06/15/2046        1,600            (258         (187     17         0   
         

 

 

   

 

 

   

 

 

    

 

 

 
          $ 276      $ 81      $ 17       $ (6
         

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

          $ 276      $ 81      $     17       $     (6
         

 

 

   

 

 

   

 

 

    

 

 

 

 

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 June 30, 2016:

 

Cash of $486 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets           Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
   

Total

          Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
            Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     17      $     17        $     0      $     0      $     (6   $     (6
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

SWAP AGREEMENTS:

 

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

 

Counterparty

 

Index/Tranches

 

Fixed
Receive Rate

   

Maturity
Date

         

Notional
Amount (2)

   

Premiums
(Received)

   

Unrealized
Appreciation/
(Depreciation)

    Swap Agreements, at Value (3)  
                     Asset     Liability  
GST  

ABX.HE.AA.6-1 Index

    0.320     07/25/2045          $    6,431      $ (1,281   $ 55      $ 0      $ (1,226
 

ABX.HE.PENAAA.7-1 Index

    0.090        08/25/2037          1,785        (347     (7     0        (354
           

 

 

   

 

 

   

 

 

   

 

 

 
            $ (1,628   $ 48      $ 0      $ (1,580
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     (1,628   $     48      $     0      $     (1,580
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(2) 

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

(3) 

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

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   31


Schedule of Investments PCM Fund, Inc. (Cont.)

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged as of June 30, 2016:

 

(l) Securities with an aggregate market value of $1,726 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets           Financial Derivative Liabilities                     
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
     Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
Pledged
     Net
Exposure  (4)
 

GST

  $  0       $  0       $  0       $  0        $  0       $  0       $  (1,580   $  (1,580   $   (1,580   $   1,726       $   146   
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of June 30, 2016:

 

    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      $ 17      $ 17   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 6      $ 6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Swap Agreements

  $ 0      $ 1,580      $ 0      $ 0      $ 0      $ 1,580   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     1,580      $     0      $     0      $     6      $     1,586   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended June 30, 2016:

 

    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      $ 0      $ 0      $ 0      $ (307   $ (307
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

  

Swap Agreements

  $ 0      $ 3,220      $ 0      $ 0      $ 135      $ 3,355   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 3,220      $ 0      $ 0      $ (172   $ 3,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

Exchange-traded or centrally cleared

  

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 108      $ 108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

  

Swap Agreements

  $ 0      $ (3,108   $ 0      $ 0      $     (112   $ (3,220
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     (3,108   $     0      $     0      $ (4   $     (3,112
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3    

Fair

Value at
06/30/2016

 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 0      $ 5,129      $ 333      $ 5,462   

Corporate Bonds & Notes

  

Banking & Finance

    0        9,121            2,089        11,210   

Industrials

    0        16,013        1,309        17,322   

Utilities

    0        2,306        0        2,306   

Municipal Bonds & Notes

  

Arkansas

    0        501        0        501   

West Virginia

    0        805        0        805   

U.S. Government Agencies

    0        2,390        0        2,390   

Non-Agency Mortgage-Backed Securities

    0            73,941        697            74,638   

Asset-Backed Securities

    0        65,792        73        65,865   

Common Stocks

  

Energy

        86        0        0        86   

Short-Term Instruments

  

Repurchase Agreements

    0        5,100        0        5,100   

Short-Term Notes

    0        5,599        0        5,599   
Category and Subcategory   Level 1     Level 2     Level 3    

Fair

Value at
06/30/2016

 

U.S. Treasury Bills

  $ 0      $ 1,726      $ 0      $ 1,726   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 86      $ 188,423      $ 4,501      $ 193,010   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

  

Exchange-traded or centrally cleared

  $ 0      $ 17      $ 0      $ 17   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (6     0        (6

Over the counter

    0        (1,580     0        (1,580
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (1,586   $ 0      $ (1,586
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     86      $     186,854      $     4,501      $     191,441   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 424      $ 0      $ (6   $ 2      $ 0      $ (87   $ 0      $ 0      $ 333      $ (88

Corporate Bonds & Notes

  

Banking & Finance

    6,039        352        (441     0        1        (161     0        (3,701     2,089        (73

Industrials

    1,825        0        (151     2        0        (32     0        (335     1,309        2   

Non-Agency Mortgage-Backed Securities

    672        0        (36     4        2        5        50        0        697        6   

Asset-Backed Securities

    75        0        0        6        0        (8     0        0        73        (8

Warrants

  

Industrials

    12        0        0        0        0        (12     0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     9,047      $     352      $     (634   $     14      $     3      $     (295   $     50      $     (4,036   $     4,501      $     (161
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 06/30/2016
     Valuation
Technique
   Unobservable
Inputs
    

Input Value(s)

(% Unless

Noted

Otherwise)

 

Investments in Securities, at Value

     

Bank Loan Obligations

  $ 333      

Third Party Vendor

     Broker Quote         68.00   

Corporate Bonds & Notes

          

Banking & Finance

    2,089       Reference Instrument      Spread movement         37.00-324.53 bps   

Industrials

    1,309       Proxy Pricing      Base Price         100.09   

Non-Agency Mortgage-Backed Securities

    51      

Other Valuation Techniques  (2)

             —     
    646      

Proxy Pricing

     Base Price         7.30-102.63   

Asset-Backed Securities

    73      

Proxy Pricing

     Base Price         2.00-63.90   
 

 

 

          

Total

  $     4,501            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 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   JUNE 30, 2016   33


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 158.9%   
BANK LOAN OBLIGATIONS 0.9%   

iHeartCommunications, Inc.

  

7.210% due 01/30/2019

  $     200      $     147   

OGX (13.000% PIK)

  

13.000% due 04/10/2049 (b)

      133          109   

Sequa Corp.

  

5.250% due 06/19/2017

      908          715   
       

 

 

 

Total Bank Loan Obligations (Cost $1,177)

    971   
       

 

 

 
CORPORATE BONDS & NOTES 50.7%   
BANKING & FINANCE 26.3%   

AGFC Capital Trust

  

6.000% due 01/15/2067 (j)

      1,000          470   

Australia & New Zealand Banking Group Ltd.

  

6.750% due 06/15/2026 (f)

      300          310   

Banco Bilbao Vizcaya Argentaria S.A.

  

6.750% due 02/18/2020 (f)

  EUR     200          191   

Banco do Brasil S.A.

  

9.000% due 06/18/2024 (f)

  $     387          302   

Banco Espirito Santo S.A.

  

4.000% due 01/21/2019 ^

  EUR     200          61   

4.750% due 01/15/2018 ^

      100          31   

Barclays Bank PLC

  

14.000% due 06/15/2019 (f)

  GBP     100          162   

Barclays PLC

  

6.500% due 09/15/2019 (f)

  EUR     200          198   

7.875% due 09/15/2022 (f)(j)

  GBP     1,250          1,503   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

  $     3,544          3,544   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (f)(j)

      1,100          1,078   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023 (j)

      400          407   

Cooperatieve Rabobank UA

  

6.875% due 03/19/2020 (i)

  EUR       1,000            1,301   

11.000% due 06/30/2019 (f)(j)

  $     1,135          1,358   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (f)(j)

  GBP     700          840   

7.875% due 01/23/2024 (f)

  $     200          192   

Exeter Finance Corp.

  

9.750% due 05/20/2019

      900          848   

HSBC Holdings PLC

  

5.250% due 09/16/2022 (f)(j)

  EUR     1,000          1,003   

6.000% due 09/29/2023 (f)

      200          214   

Jefferies Finance LLC

  

7.500% due 04/15/2021 (j)

  $     767          691   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020 (j)

      1,400          1,232   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (h)

      1,817          1,691   

Lloyds Banking Group PLC

  

7.625% due 06/27/2023 (f)(j)

  GBP     1,400          1,766   

Nationwide Building Society

  

10.250% due (f)

      2          363   

Navient Corp.

  

8.450% due 06/15/2018 (j)

  $     811          880   

PHH Corp.

  

7.375% due 09/01/2019

      260          258   

Pinnacol Assurance

  

8.625% due 06/25/2034 (h)

      1,100          1,220   

Rio Oil Finance Trust

  

9.250% due 07/06/2024

      1,337          1,154   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (f)(j)

      1,930          1,780   

8.000% due 08/10/2025 (f)(j)

      300          280   

Santander UK Group Holdings PLC

  

7.375% due 06/24/2022 (f)(j)

  GBP     500          622   

Springleaf Finance Corp.

  

8.250% due 12/15/2020

  $     230          231   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

TIG FinCo PLC

  

8.500% due 03/02/2020

  GBP     132      $     177   

8.750% due 04/02/2020 (j)

      678          668   

Toll Road Investors Partnership LP

  

0.000% due 02/15/2045 (d)

  $     756          195   
       

 

 

 
            27,221   
       

 

 

 
INDUSTRIALS 20.6%   

Altice Financing S.A.

  

7.500% due 05/15/2026 (j)

      500          492   

Ancestry.com Holdings LLC (9.625% Cash or 10.375% PIK)

   

9.625% due 10/15/2018 (b)(j)

      264          268   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

      87          66   

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

  

9.000% due 10/15/2019 (b)(j)

      1,221          1,038   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 (g)(j)

        3,667          3,392   

9.000% due 02/15/2020 (g)(j)

      183          170   

Chesapeake Energy Corp.

  

3.878% due 04/15/2019

      20          15   

Corp. GEO S.A.B. de C.V.

  

9.250% due 06/30/2020 ^

      470          0   

CVS Pass-Through Trust

  

5.880% due 01/10/2028 (j)

      519          586   

Diamond 1 Finance Corp.

  

5.450% due 06/15/2023

      25          26   

6.020% due 06/15/2026

      23          24   

DISH DBS Corp.

  

7.750% due 07/01/2026

      300          311   

DriveTime Automotive Group, Inc.

  

8.000% due 06/01/2021 (j)

      770          711   

Enterprise Inns PLC

  

6.875% due 05/09/2025

  GBP     10          13   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

  $     292          127   

Fresh Market, Inc.

  

9.750% due 05/01/2023 (j)

      600          565   

Global Geophysical Services, Inc.

  

10.500% due 05/01/2017 ^

      357          0   

Harvest Operations Corp.

  

2.330% due 04/14/2021

      846          850   

iHeartCommunications, Inc.

  

9.000% due 03/01/2021 (j)

      690          489   

9.000% due 09/15/2022 (j)

      1,000          697   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021 (j)

      1,310          328   

8.125% due 06/01/2023

      54          14   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019 (j)

      1,890          1,673   

JC Penney Corp., Inc.

  

5.875% due 07/01/2023

      100          101   

Micron Technology, Inc.

  

7.500% due 09/15/2023 (j)

      300          321   

Millar Western Forest Products Ltd.

  

8.500% due 04/01/2021

      30          14   

Numericable SFR S.A.

  

7.375% due 05/01/2026

      827          819   

OGX Austria GmbH

  

8.375% due 04/01/2022 ^

      2,050          0   

8.500% due 06/01/2018 ^

      1,400          0   

Prime Security Services Borrower LLC

  

9.250% due 05/15/2023 (j)

      800          850   

Reynolds Group Issuer, Inc.

  

4.127% due 07/15/2021

      200          201   

7.000% due 07/15/2024

      100          103   

Scientific Games International, Inc.

  

10.000% due 12/01/2022 (j)

      700          572   

Sequa Corp.

  

7.000% due 12/15/2017

      1,166          309   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017 (j)

  $     500      $     492   

Tembec Industries, Inc.

  

9.000% due 12/15/2019 (j)

      2,600          2,028   

UAL Pass-Through Trust

  

6.636% due 01/02/2024 (j)

      1,481          1,572   

10.400% due 05/01/2018 (j)

      168          173   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     677          900   

Westmoreland Coal Co.

  

8.750% due 01/01/2022 (j)

  $     1,415          1,065   
       

 

 

 
          21,375   
       

 

 

 
UTILITIES 3.8%   

Frontier Communications Corp.

  

10.500% due 09/15/2022

      150          159   

11.000% due 09/15/2025

      150          156   

Illinois Power Generating Co.

  

6.300% due 04/01/2020 (j)

      480          190   

7.950% due 06/01/2032 (j)

      800          312   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      750          218   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      798          150   

Petrobras Global Finance BV

  

6.750% due 01/27/2041 (j)

      1,796          1,450   

6.850% due 06/05/2115

      263          201   

6.875% due 01/20/2040 (j)

      551          450   

7.875% due 03/15/2019 (j)

      440          455   

Sierra Hamilton LLC

  

12.250% due 12/15/2018

      100          78   

Sprint Capital Corp.

  

6.875% due 11/15/2028

      100          79   
       

 

 

 
          3,898   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $60,152)

      52,494   
       

 

 

 
MUNICIPAL BONDS & NOTES 1.7%   
ILLINOIS 0.1%   

Chicago, Illinois General Obligation Bonds, Series 2015

  

7.375% due 01/01/2033

      40          43   

7.750% due 01/01/2042

      70          71   
       

 

 

 
          114   
       

 

 

 
WEST VIRGINIA 1.6%   

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

   

7.467% due 06/01/2047

      1,690          1,611   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $1,701)

    1,725   
       

 

 

 
U.S. GOVERNMENT AGENCIES 3.1%   

Fannie Mae

  

5.597% due 03/25/2037 (a)

      585          102   

5.697% due 11/25/2039 (a)

      506          91   

5.753% due 10/25/2028

      100          102   

5.847% due 01/25/2038 (a)

      738          117   

5.927% due 03/25/2037 (a)

      592          118   

5.947% due 12/25/2037 (a)(j)

      869          111   

5.957% due 06/25/2037 (a)

      250          40   

5.987% due 04/25/2037 (a)

      523          100   

5.997% due 04/25/2037 (a)(j)

      1,356          284   

6.147% due 11/25/2035 (a)

      232          39   

6.347% due 11/25/2036 (a)(j)

        2,776          627   

6.747% due 02/25/2037 (a)

      525          108   

7.000% due 12/25/2023

      146          164   

7.500% due 06/01/2032

      45          48   

7.800% due 06/25/2026

      3          3   

10.107% due 12/25/2042

      92          108   

13.565% due 08/25/2022 (j)

      167          222   

Freddie Mac

  

0.841% due 10/25/2020 (a)(j)

      10,426          263   

5.998% due 03/15/2037 (a)

      958          185   
 

 

34   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

6.128% due 09/15/2036 (a)

  $     580      $     117   

6.138% due 09/15/2036 (a)(j)

      1,298          273   

7.000% due 08/15/2023

      7          8   
       

 

 

 

Total U.S. Government Agencies
(Cost $2,791)

      3,230   
       

 

 

 
U.S. TREASURY OBLIGATIONS 1.0%   

U.S. Treasury Notes

  

1.500% due 08/31/2018 (l)(n)

      1,000          1,019   
       

 

 

 

Total U.S. Treasury Obligations (Cost $999)

    1,019   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 62.4%   

Banc of America Alternative Loan Trust

  

15.943% due 09/25/2035 ^(j)

      2,223          2,733   

Banc of America Funding Trust

  

2.907% due 12/20/2034 (j)

      486          450   

3.070% due 03/20/2036 (j)

      693          640   

5.846% due 01/25/2037 ^

      312          265   

Banc of America Mortgage Trust

  

6.000% due 07/25/2046 ^

      4          3   

Banc of America/Merrill Lynch Commercial Mortgage, Inc.

   

5.956% due 03/11/2041 (j)

      1,967          2,111   

BCAP LLC Trust

  

6.250% due 11/26/2036

      55          55   

BCRR Trust

  

5.858% due 07/17/2040 (j)

      3,000          3,065   

Bear Stearns Adjustable Rate Mortgage Trust

  

3.167% due 07/25/2036 ^

      381          327   

Bear Stearns ALT-A Trust

  

2.819% due 04/25/2035

      323          283   

2.902% due 09/25/2035

      221          186   

3.000% due 11/25/2035 ^

      134          100   

Bear Stearns Commercial Mortgage Securities Trust

  

5.574% due 02/11/2041

      1,000          991   

Bear Stearns Structured Products, Inc. Trust

  

2.690% due 12/26/2046

      418          312   

2.878% due 01/26/2036 (j)

      1,156          907   

BRAD Resecuritization Trust

  

2.180% due 03/12/2021

      2,032          149   

6.550% due 03/12/2021

      380          392   

CBA Commercial Small Balance Commercial Mortgage

  

5.540% due 01/25/2039 ^

      638          474   

Charlotte Gateway Village LLC

  

6.410% due 12/01/2016

      128          129   

Chevy Chase Funding LLC Mortgage-Backed Certificates

   

0.753% due 08/25/2035

      172          154   

0.793% due 10/25/2034

      13          12   

Citigroup Mortgage Loan Trust, Inc.

  

3.038% due 03/25/2037 ^(j)

      621          495   

3.561% due 11/25/2035

      1,825          1,021   

Commercial Mortgage Trust

  

0.202% due 10/10/2046 (a)(j)

        77,000          763   

6.302% due 07/10/2046

      760          831   

Countrywide Alternative Loan Trust

  

0.658% due 05/20/2046 ^(j)

      966          613   

0.693% due 12/25/2046 ^

      208          68   

0.783% due 10/25/2035 (j)

      1,059          788   

0.803% due 05/25/2036 ^(j)

      2,242          1,087   

2.649% due 10/25/2035 ^

      235          187   

2.952% due 02/25/2037 ^

      340          286   

5.500% due 08/25/2034 (j)

      641          632   

5.500% due 02/25/2036 ^

      34          28   

5.500% due 03/25/2036 ^(j)

      661          471   

6.250% due 09/25/2034

      97          98   

6.697% due 07/25/2036 (a)(j)

      1,609          513   

18.553% due 07/25/2035 (j)

      1,332          1,813   

Countrywide Home Loan Mortgage Pass-Through Trust

  

0.693% due 03/25/2036

      250          198   

1.093% due 03/25/2035 (j)

      1,236          1,014   

1.233% due 02/25/2035

      156          117   

2.592% due 02/20/2036 ^(j)

      1,768          604   

2.693% due 10/20/2035 ^

      268          229   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

2.724% due 10/20/2035 ^

  $     198      $     153   

2.807% due 03/25/2037 ^

      491          380   

2.964% due 10/20/2035

      583          498   

3.002% due 08/25/2034

      296          266   

5.500% due 08/25/2035 ^

      43          37   

Credit Suisse Commercial Mortgage Trust

  

5.849% due 02/15/2039

      130          118   

6.268% due 02/15/2041 (j)

      2,000          2,082   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

6.000% due 11/25/2036

      297          275   

DBUBS Mortgage Trust

  

4.652% due 11/10/2046

      700          473   

First Horizon Alternative Mortgage Securities Trust

  

2.589% due 11/25/2036 ^(j)

      603          466   

First Horizon Mortgage Pass-Through Trust

  

2.731% due 01/25/2037 ^(j)

      1,151          1,013   

GMAC Mortgage Corp. Loan Trust

  

3.500% due 06/25/2034

      157          155   

GS Mortgage Securities Trust

  

6.215% due 08/10/2043 (j)

      730          769   

GSR Mortgage Loan Trust

  

2.980% due 04/25/2035

      402          385   

3.079% due 05/25/2035

      208          190   

5.500% due 06/25/2036 ^

      67          62   

HarborView Mortgage Loan Trust

  

1.048% due 04/19/2034

      31          28   

2.313% due 11/19/2034

      147          115   

2.954% due 02/25/2036 ^

      59          49   

3.163% due 08/19/2036 ^

      23          20   

HSI Asset Loan Obligation Trust

  

2.823% due 01/25/2037 ^(j)

      555          423   

IndyMac Mortgage Loan Trust

  

0.716% due 06/25/2037 ^(j)

      1,862            1,328   

0.733% due 03/25/2035

      52          45   

2.778% due 06/25/2037 ^(j)

      764          539   

JPMBB Commercial Mortgage Securities Trust

  

0.285% due 11/15/2045 (a)(j)

        76,047          1,408   

JPMorgan Chase Commercial Mortgage Securities Corp.

  

5.727% due 05/15/2041 (i)

      1,500          1,520   

JPMorgan Mortgage Trust

  

2.782% due 04/25/2037 ^(j)

      1,213          941   

5.500% due 01/25/2036 ^

      77          71   

5.500% due 06/25/2037 ^

      63          62   

Luminent Mortgage Trust

  

0.616% due 12/25/2036 (j)

      922          737   

0.653% due 10/25/2046 (j)

      833          710   

MASTR Adjustable Rate Mortgages Trust

  

2.904% due 11/25/2035 ^

      987          751   

3.279% due 10/25/2034

      319          281   

Merrill Lynch Alternative Note Asset Trust

  

0.523% due 01/25/2037

      315          133   

Merrill Lynch/Countrywide Commercial Mortgage Trust

  

5.378% due 08/12/2048 (j)

      808          817   

Morgan Stanley Capital Trust

  

5.569% due 12/15/2044 (j)

      1,277          1,321   

Opteum Mortgage Acceptance Corp. Trust

  

0.723% due 07/25/2036

      357          231   

Prime Mortgage Trust

  

6.097% due 11/25/2036 (a)

      5,807          794   

Provident Funding Mortgage Loan Trust

  

3.022% due 10/25/2035

      132          131   

RBSSP Resecuritization Trust

  

5.000% due 09/26/2036 (j)

      2,419          1,450   

Residential Accredit Loans, Inc. Trust

  

3.341% due 12/26/2034 ^

      333          257   

3.982% due 01/25/2036 ^(j)

      1,147          922   

6.000% due 09/25/2035 (j)

      573          427   

6.000% due 08/25/2036 ^

      400          334   

Residential Asset Mortgage Products Trust

  

7.500% due 12/25/2031

      111          113   

Royal Bank of Scotland Capital Funding Trust

  

6.068% due 02/17/2051 (j)

      3,000          3,056   

Structured Adjustable Rate Mortgage Loan Trust

  

1.855% due 05/25/2035 ^(j)

      2,676          1,881   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

2.821% due 01/25/2036 ^

  $     507      $     383   

2.859% due 09/25/2036 ^

      448          296   

3.073% due 04/25/2036 ^

      552          425   

3.082% due 09/25/2035

      123          102   

4.361% due 11/25/2036 ^

      188          180   

Structured Asset Mortgage Investments Trust

  

0.683% due 02/25/2036

      512          411   

0.733% due 02/25/2036 ^

      415          340   

Suntrust Adjustable Rate Mortgage Loan Trust

  

2.993% due 01/25/2037 ^

      181          169   

Theatre Hospitals PLC

  

3.588% due 10/15/2031 (j)

  GBP     1,057          1,345   

Wachovia Bank Commercial Mortgage Trust

  

5.935% due 01/15/2041 (j)

  $     1,500          1,555   

6.147% due 02/15/2051 (j)

      2,500          2,604   

WaMu Commercial Mortgage Securities Trust

  

5.972% due 03/23/2045 (j)

      1,000          999   

WaMu Mortgage Pass-Through Certificates Trust

  

0.743% due 07/25/2045

      144          135   

1.167% due 01/25/2047

      139          125   

2.506% due 12/25/2036 ^(j)

      618          538   

4.411% due 07/25/2037 ^

      173          157   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

1.207% due 04/25/2047 ^

      848          75   

Wells Fargo Mortgage-Backed Securities Trust

  

6.000% due 03/25/2037 ^

      388          382   

Wells Fargo-RBS Commercial Mortgage Trust

  

0.507% due 12/15/2046 (a)

        30,000          681   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $51,340)

      64,713   
       

 

 

 
ASSET-BACKED SECURITIES 16.6%   

Apidos CLO

  

0.000% due 07/22/2026

      500          261   

Bear Stearns Asset-Backed Securities Trust

  

6.500% due 08/25/2036 ^(j)

      693          435   

22.003% due
03/25/2036 ^(j)

      2,072          2,630   

Bombardier Capital Mortgage Securitization Corp.

  

7.830% due 06/15/2030

      1,428          788   

Carrington Mortgage Loan Trust

  

0.603% due 08/25/2036

      100          62   

Centex Home Equity Loan Trust

  

0.903% due 06/25/2035

      236          205   

Citigroup Mortgage Loan Trust, Inc.

  

0.613% due 12/25/2036 (j)

      2,095          1,350   

0.613% due 01/25/2037

      240          135   

5.972% due 01/25/2037 ^(j)

      745          535   

Conseco Finance Securitizations Corp.

  

7.960% due 05/01/2031

      439          324   

Countrywide Asset-Backed Certificates

  

0.583% due 12/25/2036 ^(j)

      1,843          1,669   

0.603% due 01/25/2037

      81          77   

0.603% due 04/25/2047 (j)

      1,537          1,259   

1.003% due 09/25/2034

      116          112   

5.329% due 10/25/2032 ^(j)

      948          789   

EMC Mortgage Loan Trust

       

1.393% due 05/25/2039

      454          436   

Lehman XS Trust

       

5.101% due 05/25/2037 ^

      313          419   

5.420% due 11/25/2035 ^

      274          274   

MASTR Asset-Backed Securities Trust

  

5.233% due 11/25/2035

      103          103   

Morgan Stanley ABS Capital, Inc. Trust

  

0.513% due 05/25/2037

      154          96   

Residential Asset Mortgage Products Trust

  

1.133% due 03/25/2033

      59          53   

5.572% due 06/25/2032

      89          88   

Soundview Home Loan Trust

       

0.513% due 11/25/2036

      212          85   

South Coast Funding Ltd.

       

0.890% due 01/06/2041

      509          144   

0.890% due 01/06/2041 (j)

        14,337          4,050   
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   35


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund (Cont.)

 

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

Structured Asset Securities Corp. Mortgage Loan Trust

  

0.603% due 05/25/2036 (j)

        364          352   

0.753% due 06/25/2035 (j)

      500          442   

Washington Mutual Asset-Backed Certificates Trust

  

0.513% due 10/25/2036

      120          62   
       

 

 

 

Total Asset-Backed Securities
(Cost $16,260)

   

        17,235   
       

 

 

 
SOVEREIGN ISSUES 0.9%   

Costa Rica Government International Bond

  

7.000% due 04/04/2044 (j)

      300          301   

Republic of Greece Government International Bond

  

3.000% due 02/24/2023

  EUR     33          28   

3.000% due 02/24/2024

      33          27   

3.000% due 02/24/2025

      33          26   

3.000% due 02/24/2026

      33          26   

3.000% due 02/24/2027

      33          25   

3.000% due 02/24/2028

      33          25   

3.000% due 02/24/2029

      33          24   

3.000% due 02/24/2030

      33          24   

3.000% due 02/24/2031

      33          24   

3.000% due 02/24/2032

      33          24   

3.000% due 02/24/2033

      33          23   

3.000% due 02/24/2034

      33          23   

3.000% due 02/24/2035

      33          23   

3.000% due 02/24/2036

      33          23   

3.000% due 02/24/2037

      33          23   

3.000% due 02/24/2038

      33          22   

3.000% due 02/24/2039

      33          22   

3.000% due 02/24/2040

      33          22   

3.000% due 02/24/2041

      33          22   

3.000% due 02/24/2042

      33          22   

4.750% due 04/17/2019

      100          101   
       

 

 

 

Total Sovereign Issues (Cost $810)

  

      880   
       

 

 

 
       

SHARES

        MARKET
VALUE
(000S)
 
COMMON STOCKS 0.1%   
ENERGY 0.0%   

OGX Petroleo e Gas S.A. SP - ADR

      54,706      $     0   
       

 

 

 
FINANCIALS 0.1%   

TIG FinCo PLC (h)

        103,539          66   
       

 

 

 

Total Common Stocks (Cost $154)

  

      66   
       

 

 

 
WARRANTS 0.0%   
INDUSTRIALS 0.0%   

Global Geophysical Services, Inc. - Exp. 05/01/2049

      1,552          0   
       

 

 

 

Total Warrants (Cost $15)

          0   
       

 

 

 
PREFERRED SECURITIES 0.3%   
BANKING & FINANCE 0.3%   

AgriBank FCB

       

6.875% due 01/01/2024 (f)

      2,500          264   
       

 

 

 

Total Preferred Securities (Cost $250)

    264   
       

 

 

 
SHORT-TERM INSTRUMENTS 21.2%   

REPURCHASE AGREEMENTS (i) 1.9%

  

            2,005   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 8.1%   

Federal Home Loan Bank

       

0.304% due 08/29/2016 (d)(e)

  $     300          300   
       

PRINCIPAL
AMOUNT
(000S)

        MARKET
VALUE
(000S)
 

0.314% due 08/05/2016 -
08/11/2016 (d)(e)

  $     4,700      $     4,699   

0.325% due
08/12/2016 (d)(e)

      3,400          3,399   
       

 

 

 
          8,398   
       

 

 

 
U.S. TREASURY BILLS 11.2%   

0.192% due 07/21/2016 -
12/08/2016 (c)(d)(l)(n)

        11,617          11,613   
       

 

 

 
Total Short-Term Instruments
(Cost $22,015)
          22,016   
       

 

 

 
       
Total Investments in Securities
(Cost $157,664)
          164,613   
       
Total Investments 158.9%
(Cost $157,664)
    $     164,613   

Financial Derivative
Instruments (k)(m) (1.2)%

(Cost or Premiums, net $(1,488))

   

  

      (1,244
Other Assets and Liabilities, net (57.7)%          (59,742
       

 

 

 
Net Assets 100.0%       $       103,627   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*, EXCEPT NUMBER OF CONTRACTS AND UNITS):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Payment in-kind security.
(c) Coupon represents a weighted average yield to maturity.
(d) Zero coupon security.
(e) Coupon represents a yield to maturity.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.
(g) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(h)  RESTRICTED SECURITIES:

 

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

KGH Intermediate Holdco LLC 8.500% due 08/08/2019

         08/07/2014        $    1,792      $     1,691        1.63

Pinnacol Assurance 8.625% due 06/25/2034

         06/23/2014        1,100        1,220        1.18   

TIG FinCo PLC

         04/02/2015        154        66        0.06   
        

 

 

   

 

 

   

 

 

 
           $    3,046      $ 2,977        2.87
        

 

 

   

 

 

   

 

 

 

 

36   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(i)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 
BCY     0.750     06/30/2016        07/01/2016      $ 700      U.S. Treasury Notes 1.250% due 06/30/2023   $ (716   $ 700      $ 700   
SSB     0.010        06/30/2016        07/01/2016            1,305      U.S. Treasury Notes 2.375% due 12/31/2020     (1,331     1,305        1,305   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

    $     (2,047   $     2,005      $     2,005   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 

BCY

    0.900     11/24/2015        TBD  (2)    $     (1,908   $     (1,918
    1.385        04/22/2016        07/22/2016          (336     (337
    1.490        05/19/2016        08/17/2016          (493     (494
    1.750        05/12/2016        08/12/2016          (480     (481
    2.125        04/01/2016        07/01/2016          (538     (541
    2.126        05/17/2016        08/17/2016              (2,109     (2,115
    2.135        04/22/2016        07/22/2016          (2,114     (2,123
    2.146        07/01/2016        10/03/2016          (494     (494
    2.475        10/01/2015        10/03/2016          (1,142     (1,149

BOS

    2.561        06/08/2016        09/08/2016          (2,228     (2,232
    2.606        06/17/2016        09/16/2016          (1,314     (1,315

BPG

    2.731        03/16/2016        03/16/2017          (929     (937

BPS

    0.150        05/17/2016        08/17/2016      EUR     (758     (842
    1.000        05/18/2016        08/18/2016      GBP     (944     (1,259
    1.285        04/22/2016        07/22/2016      $     (1,051     (1,054
    1.350        04/28/2016        07/27/2016          (1,290     (1,293
    1.420        05/12/2016        08/08/2016          (1,613     (1,616

DBL

    2.807        06/09/2016        09/12/2016          (1,900     (1,903

DEU

    1.300        04/14/2016        07/14/2016          (786     (788
    1.400        04/08/2016        07/08/2016          (502     (504
    1.400        04/29/2016        07/29/2016          (628     (630
    1.400        05/17/2016        08/17/2016          (2,148     (2,152
    1.450        06/01/2016        09/01/2016          (2,792     (2,795
    1.500        06/06/2016        09/02/2016          (1,719     (1,721
    1.500        06/09/2016        09/09/2016          (619     (620
    1.500        06/20/2016        09/09/2016          (2,544     (2,545
    1.850        04/21/2016        07/21/2016          (1,205     (1,209

FOB

    2.195        06/10/2016        07/08/2016          (2,300     (2,303

JPS

    1.482        05/09/2016        08/08/2016          (1,872     (1,876
    1.881        06/03/2016        09/06/2016          (1,256     (1,258

MSC

    1.550        06/10/2016        09/12/2016          (1,850     (1,852
    1.600        05/09/2016        08/02/2016          (2,633     (2,639
    1.700        06/10/2016        09/12/2016          (1,195     (1,196

RDR

    1.030        05/18/2016        08/17/2016          (297     (297
    1.410        05/27/2016        08/24/2016          (3,176     (3,180
    2.260        01/14/2016        01/13/2017          (1,040     (1,051

RTA

    1.697        07/02/2015        07/01/2016          (1,615     (1,643
    2.039        12/21/2015        12/20/2016          (1,742     (1,761
    2.065        02/09/2016        02/03/2017          (3,467     (3,495
    2.207        03/11/2016        03/10/2017          (1,718     (1,730
    2.230        05/06/2016        05/05/2017          (2,046     (2,053
    2.230        07/01/2016        06/30/2017          (1,441     (1,441

SAL

    1.476        05/18/2016        08/18/2016          (612     (613
    1.480        04/15/2016        07/15/2016          (579     (581

SOG

    1.290        05/20/2016        08/22/2016          (467     (468

UBS

    0.350        06/06/2016        09/06/2016      EUR     (1,021     (1,133
    0.950        05/17/2016        07/13/2016      GBP     (2,107     (2,809
    1.150        05/18/2016        08/18/2016          (484     (645
    1.260        06/06/2016        07/06/2016          (808     (1,076
    1.430        06/03/2016        09/06/2016      $     (954     (955
    1.480        05/09/2016        08/09/2016          (239     (240
    1.540        04/28/2016        07/28/2016              (1,285     (1,288

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   37


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund (Cont.)

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 
    1.680     06/03/2016        09/06/2016      $     (719   $ (720
    2.242        01/04/2016        07/05/2016          (3,422     (3,460
    2.342        01/04/2016        07/05/2016          (860     (870
    2.392        01/04/2016        07/05/2016              (1,120     (1,133
           

 

 

 

Total Reverse Repurchase Agreements

  

        $     (78,833
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(70,790) at a weighted average interest rate of 1.472%.

 

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 (received)/pledged as of June 30, 2016:

 

(j) Securities with an aggregate market value of $97,744 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

Counterparty  

Repurchase

Agreement

Proceeds

to be

Received

   

Payable for

Reverse

Repurchase

Agreements

   

Payable for

Sale-Buyback

Transactions

    

Total

Borrowings and

Other Financing

Transactions

   

Collateral

(Received)/Pledged

    Net Exposure  (4)  

Global/Master Repurchase Agreement

  

BCY

  $ 700      $ (9,652   $ 0       $ (8,952   $ 10,840      $ 1,888   

BOS

    0        (3,547     0         (3,547     5,412        1,865   

BPG

    0        (937     0         (937     1,014        77   

BPS

    0        (6,064     0         (6,064     7,108        1,044   

DBL

    0        (1,903     0         (1,903     4,050        2,147   

DEU

    0        (12,964     0             (12,964         14,791            1,827   

FOB

    0        (2,303     0         (2,303     3,666        1,363   

JPS

    0        (3,134     0         (3,134     3,602        468   

MSC

    0        (5,687     0         (5,687     6,793        1,106   

RDR

    0        (4,528     0         (4,528     5,011        483   

RTA

    0        (12,123     0         (12,123     14,010        1,887   

SAL

    0        (1,194     0         (1,194     1,532        338   

SOG

    0        (468     0         (468     489        21   

SSB

    1,305        0        0         1,305        (1,331     (26

UBS

    0        (14,329     0         (14,329     17,642        3,313   
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     2,005      $     (78,833   $     0          
 

 

 

   

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

  

Asset-Backed Securities

  $ 0      $ (3,460   $ (1,903   $ (1,761   $ (7,124

Corporate Bonds & Notes

    0        (8,521     (18,743     (1,918     (29,182

Non-Agency Mortgage-Backed Securities

    (2,184     (8,086     (18,276     (10,415     (38,961

Sovereign Issues

    0        0        (240     0        (240

U.S. Government Agencies

    0        (1,391     0        0        (1,391
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     (2,184   $     (21,458   $     (39,162   $     (14,094   $ (76,898
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

        $     (76,898
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(1,935) is outstanding at period end.

 

38   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

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

 

PURCHASED OPTIONS:

 

OPTIONS ON EXCHANGE-TRADED FUTURES CONTRACTS

 

Description    Strike
Price
    Expiration
Date
    # of
Contracts
    Cost     Market
Value
 

Put - CME S&P 500 Index July Futures

     1,960.000        07/15/2016        95      $ 357      $ 57   
        

 

 

   

 

 

 

Total Purchased Options

  

  $     357      $     57   
        

 

 

   

 

 

 

 

WRITTEN OPTIONS:

 

OPTIONS ON EXCHANGE-TRADED FUTURES CONTRACTS

 

Description    Strike
Price
    Expiration
Date
    # of
Contracts
    Premiums
(Received)
    Market
Value
 

Call - CME S&P 500 Index July Futures

     2,065.000        07/15/2016        95      $ (917   $ (917
        

 

 

   

 

 

 

Total Written Options

  

  $     (917   $     (917
        

 

 

   

 

 

 

 

FUTURES CONTRACTS:

 

Description   Type    

Expiration

Month

    # of
Contracts
   

Unrealized

Appreciation/
(Depreciation)

    Variation Margin  
         

Asset

   

Liability

 

E-mini S&P 500 Index September Futures

    Long        09/2016        16      $ (5   $ 19      $ 0   

S&P 500 Index September Futures

    Long        09/2016        99        63        579        0   
       

 

 

   

 

 

   

 

 

 

Total Futures Contracts

        $     58      $     598      $     0   
       

 

 

   

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

Pay/Receive
Floating Rate

 

Floating Rate Index

 

Fixed Rate

   

Maturity
Date

    

Notional
Amount

   

Market
Value

    Unrealized
Appreciation/
(Depreciation)
    Variation Margin  
               Asset      Liability  

Pay

 

3-Month CAD-Bank Bill

    3.300     06/19/2024         CAD        4,900      $ 648      $ 81      $ 4       $ 0   

Receive

 

3-Month CAD-Bank Bill

    3.500        06/20/2044           1,600        (515     (119     0         (3

Pay

 

3-Month USD-LIBOR

    2.750        06/19/2023         $        304,100        32,617        5,724        0         (265

Pay

 

3-Month USD-LIBOR

    3.000        06/18/2024           19,700        2,658        462        0         (26

Receive

 

3-Month USD-LIBOR *

    1.750        12/21/2026           277,000        (8,050     (2,719     572         0   
            

 

 

   

 

 

   

 

 

    

 

 

 
             $ 27,358      $ 3,429      $ 576       $ (294
            

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

  

  $     27,358      $     3,429      $     576       $     (294
            

 

 

   

 

 

   

 

 

    

 

 

 

 

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

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of June 30, 2016:

 

(l) Securities with an aggregate market value of $8,176 and cash of $19,201 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets           Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
   

Total

          Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
            Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     57      $     598      $     576      $     1,231        $     (917   $     0      $     (294   $     (1,211
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   39


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund (Cont.)

 

 

(m)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty

  

Settlement

Month

   

Currency to

be Delivered

   

Currency to

be Received

    Unrealized Appreciation/
(Depreciation)
 
         Asset     Liability  

AZD

     08/2016      AUD     14      $     10      $ 0      $ 0   
     08/2016      JPY     4,519          41        0        (3

BOA

     07/2016      GBP     2,087          3,060          282        0   
     07/2016      $     1,170      EUR     1,062        8        0   
     07/2016          2,955      GBP     2,221        2        0   
     08/2016      EUR     1,062      $     1,172        0        (8
     08/2016      GBP     2,221          2,956        0        (2
     08/2016      $     139      AUD     184        0        (2

BPS

     08/2016      AUD     14      $     10        0        0   
     08/2016      JPY     21,674          200        0          (10

BRC

     07/2016      $     729      EUR     659        3        0   
     08/2016      EUR     659      $     730        0        (2

CBK

     07/2016          22          25        0        0   
     07/2016      GBP     252          358        22        0   
     07/2016      ILS     38          10        0        0   
     08/2016      CHF     59          60        0        0   
     08/2016      NOK     82          10        0        0   
     08/2016      SEK     255          31        1        0   

DUB

     07/2016      GBP     66          97        9        0   

GLM

     07/2016      EUR     2,139          2,390        16        0   
     07/2016      $     668      EUR     587        0        (17
     08/2016      AUD     177      $     131        0        (1
     08/2016      JPY     82,679          812        12        (1

HUS

     07/2016      GBP     130          171        0        (2
     07/2016      $     177      GBP     125        0        (11
     08/2016      AUD     67      $     49        0        (1
     08/2016      HKD     326          42        0        0   
     08/2016      SGD     14          10        0        0   

JPM

     07/2016      $     61      GBP     43        0        (4
     08/2016      CAD     43      $     34        0        0   
     08/2016      CHF     21          21        0        0   
     08/2016      $     118      CHF     113        0        (2
     08/2016          699      JPY     73,850        17        0   

MSB

     07/2016      EUR     776      $     853        0        (8
     07/2016      GBP     117          169        13        0   
     07/2016      $     353      EUR     314        0        (5
     07/2016          247      GBP     166        0        (26
     08/2016          86      CHF     82        0        (2

NAB

     07/2016          129      EUR     117        0        0   
     08/2016      EUR     117      $     130        0        0   

RBC

     08/2016      AUD     71          52        0        (1

SCX

     07/2016      $     224      EUR     198        0        (5
     07/2016          141      GBP     97        0        (11
     08/2016      CHF     176      $     181        0        0   
     08/2016      JPY     23,500          220        0        (7
     08/2016      $     194      JPY     20,642        6        0   

SOG

     08/2016      CHF     61      $     63        0        0   
     08/2016      HKD     155          20        0        0   

UAG

     08/2016      CHF     21          21        0        0   
     08/2016      DKK     138          21        1        0   
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

          $   392      $   (131
            

 

 

   

 

 

 

 

WRITTEN OPTIONS:

 

TRANSACTIONS IN WRITTEN CALL AND PUT OPTIONS FOR THE PERIOD ENDED JUNE 30, 2016:

 

     Balance at
Beginning of Period
    Sales     Closing Buys     Expirations     Exercised     Balance at
End of Period
 

# of Contracts

    123        1,504            (1,298     (234     0        95   

Premiums

  $     (824   $     (11,548   $ 9,751      $     1,704      $     0      $     (917

 

40   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON ASSET-BACKED SECURITIES - SELL PROTECTION (1)

 

Counterparty

 

Reference Obligation

  Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (2)
    Premiums
Paid/(Received)
    Unrealized
(Depreciation)
    Swap Agreements,
at Value (3)
 
              Asset     Liability  
BOA  

Long Beach Mortgage Loan Trust 1-Month USD-LIBOR plus 6.250% due 07/25/2033

    6.250%        07/25/2033      $     384      $     0      $     (17   $     0      $     (17
         

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Counterparty

 

Index/Tranches

  Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (2)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value (3)
 
              Asset     Liability  
GST  

ABX.HE.AA.6-1 Index

    0.320     07/25/2045      $     2,858      $     (569   $ 25      $ 0      $ (544
 

ABX.HE.PENAAA.7-1 Index

    0.090        08/25/2037        1,904        (369     (7     0        (376
         

 

 

   

 

 

   

 

 

   

 

 

 
          $ (938   $     18      $     0      $     (920
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(2) 

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

(3) 

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

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid
    Unrealized
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Pay

 

1-Year BRL-CDI

    12.055%        01/04/2021        BRL        3,600      $     10      $     (16   $     0      $     (6
             

 

 

   

 

 

   

 

 

   

 

 

 

 

TOTAL RETURN SWAPS ON EQUITY INDICES

 

Counterparty   Pay/Receive (4)   Underlying Reference   # of Units     Financing Rate   Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
(Depreciation)
    Swap Agreements, at Value  
                  Asset     Liability  

FBF

 

Receive

 

NDDUEAFE Index

    2,232     

3-Month USD-LIBOR less a specified spread

    05/11/2017      $   10,431      $ 0      $ (151   $ 0      $ (151
 

Receive

 

NDDUEAFE Index

    8,937     

3-Month USD-LIBOR less a specified spread

    06/07/2017        41,648        0        (431     0        (431
               

 

 

   

 

 

   

 

 

 
                $ (582   $ 0      $ (582
               

 

 

   

 

 

   

 

 

 

Total Swap Agreements

  

        $     (928   $     (597   $     0      $     (1,525
             

 

 

   

 

 

   

 

 

   

 

 

 

 

(4) 

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

 

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 (received)/pledged as of June 30, 2016:

 

(n) Securities with an aggregate market value of $2,096 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets            Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
            Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

AZD

  $ 0       $     0       $     0       $ 0         $ (3   $     0       $ 0      $ (3   $ (3   $ 0      $ (3

BOA

        292         0         0             292               (12     0             (17         (29         263        0            263   

BPS

    0         0         0         0           (10     0         (6     (16     (16     0        (16

BRC

    3         0         0         3           (2     0         0        (2     1        0        1   

CBK

    23         0         0         23           0        0         0        0        23        0        23   

DUB

    9         0         0         9           0        0         0        0        9            (20     (11

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   41


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund (Cont.)

 

    Financial Derivative Assets           Financial Derivative Liabilities                     
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
     Net
Exposure  (5)
 

FBF

  $ 0       $ 0       $ 0       $ 0        $ 0      $ 0       $ (582   $ (582   $     (582   $     1,057       $     475   

GLM

    28         0         0         28          (19     0         0        (19     9        0         9   

GST

    0         0         0         0          0        0         (920     (920     (920     1,039         119   

HUS

    0         0         0         0          (14     0         0        (14     (14     0         (14

JPM

    17         0         0         17          (6     0         0        (6     11        0         11   

MSB

    13         0         0         13          (41     0         0        (41     (28     0         (28

RBC

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

SCX

    6         0         0         6          (23     0         0        (23     (17     0         (17

UAG

    1         0         0         1          0        0         0        0        1        0         1   
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

Total Over the Counter

  $     392       $     0       $     0       $     392        $     (131   $     0       $     (1,525   $     (1,656       
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

 

(5) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of June 30, 2016:

 

    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

           

Purchased Options

  $ 0      $ 0      $ 57      $ 0      $ 0      $ 57   

Futures

    0        0        598        0        0        598   

Swap Agreements

    0        0        0        0        576        576   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 655      $ 0      $ 576      $ 1,231   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 392      $ 0      $ 392   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 655      $ 392      $ 576      $ 1,623   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Written Options

  $ 0      $ 0      $ 917      $ 0      $ 0      $ 917   

Swap Agreements

    0        0        0        0        294        294   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 917      $ 0      $ 294      $ 1,211   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 131      $ 0      $ 131   

Swap Agreements

    0        937        582        0        6        1,525   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 937      $ 582      $ 131      $ 6      $ 1,656   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     937      $     1,499      $     131      $     300      $     2,867   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended June 30, 2016:

 

    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

           

Purchased Options

  $ 0      $ 0      $ (1,595   $ 0      $ 0      $     (1,595

Written Options

    0        0        2,248        0        0        2,248   

Futures

    0        0        310        0        1        311   

Swap Agreements

    0        0        0        0        (723     (723
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $ 0      $ 963      $ 0      $ (722   $ 241   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 310      $ 0      $ 310   

Swap Agreements

    0        2,001        (8,269     0        305        (5,963
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 2,001      $ (8,269   $ 310      $ 305      $ (5,653
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $     2,001      $     (7,306   $     310      $     (417   $ (5,412
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

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

  

     

Exchange-traded or centrally cleared

           

Purchased Options

  $ 0      $ 0      $ (609   $ 0      $ 0      $ (609

Written Options

    0        0        (684     0        0        (684

Futures

    0        0            1,260        0        0        1,260   

Swap Agreements

    0        0        0        0        (6,089     (6,089
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ (33   $ 0      $ (6,089   $ (6,122
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $     371      $ 0      $ 371   

Swap Agreements

    0        (1,732     1,268        0        (182     (646
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (1,732   $ 1,268      $ 371      $ (182   $ (275
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     (1,732   $ 1,235      $ 371      $     (6,271   $     (6,397
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Investments in Securities, at Value

  

   

Bank Loan Obligations

  $ 0      $ 862      $ 109      $ 971   

Corporate Bonds & Notes

       

Banking & Finance

    0        23,462        3,759        27,221   

Industrials

    0        20,525        850        21,375   

Utilities

    0        3,898        0        3,898   

Municipal Bonds & Notes

       

Illinois

    0        114        0        114   

West Virginia

    0        1,611        0        1,611   

U.S. Government Agencies

    0        3,230        0        3,230   

U.S. Treasury Obligations

    0        1,019        0        1,019   

Non-Agency Mortgage-Backed Securities

        0            63,258            1,455            64,713   

Asset-Backed Securities

    0        17,235        0        17,235   

Sovereign Issues

    0        880        0        880   

Common Stocks

       

Financials

    0        0        66        66   

Preferred Securities

       

Banking & Finance

    0        264        0        264   

Short-Term Instruments

       

Repurchase Agreements

    0        2,005        0        2,005   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Short-Term Notes

  $ 0      $ 8,398      $ 0      $ 8,398   

U.S. Treasury Bills

    0        11,613        0        11,613   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     0      $ 158,374      $     6,239      $     164,613   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

  

   

Exchange-traded or centrally cleared

    598        633        0        1,231   

Over the counter

    0        392        0        392   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 598      $ 1,025      $ 0      $ 1,623   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (1,211     0        (1,211

Over the counter

    0        (1,656     0        (1,656
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (2,867   $ 0      $ (2,867
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     598      $     156,532      $     6,239      $     163,369   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

               

Bank Loan Obligations

  $ 150      $ 0      $ 0      $ 0      $ 0      $ (41   $ 0      $ 0      $ 109      $ (41

Corporate Bonds & Notes

                   

Banking & Finance

    8,489        384        (1,467     5        0        (108     0        (3,544     3,759        8   

Industrials

    4        797        0        0        0        49        0        0        850        53   

Non-Agency Mortgage-Backed Securities

    1,301        469        (316     3        21        (23     0        0        1,455        (3

Common Stocks

                   

Financials

    104        0        0        0        0        (38     0        0        66        (38

Warrants

                   

Industrials

    15        0        0        0        0        (15     0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     10,063      $     1,650      $     (1,783   $     8      $     21      $     (176   $     0      $     (3,544   $     6,239      $     (21
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   43


Schedule of Investments PIMCO Global StocksPLUS® & Income Fund (Cont.)

 

June 30, 2016

 

 

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 06/30/2016
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

          

Bank Loan Obligations

  $ 109         Other Valuation Techniques (2)         —           —     

Corporate Bonds & Notes

          

Banking & Finance

    1,220         Proxy Pricing         Base Price         102.67   
    2,539         Reference Instrument         Spread movement         37.00-324.53 bps   

Industrials

    850         Proxy Pricing         Base Price         100.00   

Non-Agency Mortgage-Backed Securities

    1,143         Proxy Pricing         Base Price         7.30-102.63   
    312         Third Party Vendor         Broker Quote         74.56   

Common Stocks

          

Financials

    66         Other Valuation Techniques (2)         —           —     
 

 

 

          

Total

  $     6,239            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 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.

 

44   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Schedule of Investments PIMCO Income Opportunity Fund

 

June 30, 2016

 

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 164.8%   
BANK LOAN OBLIGATIONS 4.0%   

Energy Future Intermediate Holding Co. LLC

  

4.250% due 12/19/2016

  $     7,507      $     7,504   

iHeartCommunications, Inc.

  

7.210% due 01/30/2019

      4,600          3,381   

OGX (13.000% PIK)

  

13.000% due 04/10/2049 (b)

      271          222   

Sequa Corp.

  

5.250% due 06/19/2017

      3,110          2,449   
       

 

 

 

Total Bank Loan Obligations (Cost $15,352)

      13,556   
       

 

 

 
CORPORATE BONDS & NOTES 55.1%   
BANKING & FINANCE 23.7%   

AGFC Capital Trust

  

6.000% due 01/15/2067 (i)

      2,300          1,081   

Banco Continental SAECA

  

8.875% due 10/15/2017 (i)

      3,900          3,973   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (e)

      240          149   

Banco Espirito Santo S.A.

  

4.000% due 01/21/2019 ^

  EUR     3,100          946   

Banco Popular Espanol S.A.

  

11.500% due
10/10/2018 (e)(i)

      1,200          1,324   

Barclays Bank PLC

  

7.625% due 11/21/2022 (i)

  $     400          431   

14.000% due
06/15/2019 (e)(i)

  GBP     2,170          3,510   

Barclays PLC

  

7.875% due
09/15/2022 (e)(i)

      1,400          1,683   

8.000% due 12/15/2020 (e)

  EUR     200          208   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

  $     11,054          11,054   

Cantor Fitzgerald LP

  

7.875% due 10/15/2019 (i)

      3,160          3,552   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023 (i)

      1,300          1,323   

Credit Agricole S.A.

  

7.500% due
06/23/2026 (e)(i)

  GBP     1,000          1,200   

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

  $       2,900          2,784   

Credit Suisse AG

  

6.500% due 08/08/2023 (i)

      200          210   

Exeter Finance Corp.

  

9.750% due 05/20/2019

      2,800          2,639   

HSBC Holdings PLC

  

6.000% due 09/29/2023 (e)

  EUR     1,400          1,498   

Jefferies Finance LLC

  

7.500% due 04/15/2021 (i)

  $     2,285          2,059   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020 (i)

      1,250          1,100   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (g)

      4,972          4,627   

Lloyds Banking Group PLC

  

7.625% due
06/27/2023 (e)(i)

  GBP     3,100          3,911   

7.875% due
06/27/2029 (e)

      1,300          1,642   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     1,200          1,331   

Nationwide Building Society

  

10.250% due (e)

  GBP     8          1,236   

Navient Corp.

  

5.500% due 01/15/2019 (i)

  $     845          852   

5.625% due 08/01/2033

      170          120   

8.000% due 03/25/2020 (i)

      1,100          1,127   

Pinnacol Assurance

  

8.625% due 06/25/2034 (g)

      2,900          3,216   

Rio Oil Finance Trust

  

9.250% due 07/06/2024

      564          487   

Royal Bank of Scotland Group PLC

  

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

      3,030          2,795   

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

      1,900          1,777   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Santander UK Group Holdings PLC

  

7.375% due
06/24/2022 (e)(i)

  GBP     2,500      $     3,108   

Sberbank of Russia Via SB Capital S.A.

  

6.125% due 02/07/2022 (i)

  $     3,400          3,767   

6.125% due 02/07/2022

      600          665   

Springleaf Finance Corp.

  

8.250% due 12/15/2020

      500          503   

Tesco Property Finance PLC

  

6.052% due 10/13/2039

  GBP     1,453          1,932   

TIG FinCo PLC

  

8.500% due 03/02/2020

      431          579   

8.750% due 04/02/2020 (i)

      2,336          2,301   

Toll Road Investors Partnership LP

  

0.000% due 02/15/2045 (d)

  $     10,954          2,824   

UBS Group AG

  

5.750% due 02/19/2022 (e)

  EUR     400          448   
       

 

 

 
            79,972   
       

 

 

 
INDUSTRIALS 23.2%   

Altice Financing S.A.

  

7.500% due 05/15/2026

  $     1,200          1,182   

Ancestry.com Holdings LLC (9.625% Cash or 10.375% PIK)

   

9.625% due 10/15/2018 (b)

      800          813   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

      239          180   

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

  

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

      3,362          2,858   

Caesars Entertainment Operating Co., Inc.

  

8.500% due
02/15/2020 (f)(i)

        10,192          9,428   

9.000% due 02/15/2020 (f)

      583          541   

California Resources Corp.

  

6.000% due 11/15/2024

      1          0   

8.000% due 12/15/2022

      1,926          1,370   

Chesapeake Energy Corp.

  

3.878% due 04/15/2019

      60          45   

Continental Airlines Pass-Through Trust

  

7.707% due 10/02/2022 (i)

      633          691   

8.048% due 05/01/2022 (i)

      567          620   

Corp. GEO S.A.B. de C.V.

  

8.875% due 03/27/2022 ^

      200          0   

9.250% due 06/30/2020 ^

      1,800          1   

Crimson Merger Sub, Inc.

  

6.625% due 05/15/2022 (i)

      1,000          833   

CVS Pass-Through Trust

  

7.507% due 01/10/2032 (i)

      2,554          3,220   

Delta Air Lines Pass-Through Trust

  

7.750% due 06/17/2021 (i)

      512          578   

Diamond 1 Finance Corp.

  

5.450% due 06/15/2023

      80          83   

5.875% due 06/15/2021

      1,000          1,026   

6.020% due 06/15/2026

      75          78   

7.125% due 06/15/2024

      700          732   

DISH DBS Corp.

  

7.750% due 07/01/2026

      800          828   

DriveTime Automotive Group, Inc.

  

8.000% due 06/01/2021 (i)

      1,500          1,386   

Enterprise Inns PLC

  

6.875% due 05/09/2025

  GBP     20          27   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

  $     1,580          687   

Global Geophysical Services, Inc.

  

10.500% due 05/01/2017 ^

      958          0   

Harvest Operations Corp.

       

2.330% due 04/14/2021

      2,538          2,550   

Hellenic Railways Organization S.A.

  

4.028% due 03/17/2017

  EUR     800          851   

iHeartCommunications, Inc.

  

9.000% due 03/01/2021 (i)

  $     3,790          2,686   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021

      3,958          990   

8.125% due 06/01/2023

      166          42   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

  $     6,181      $     5,470   

JC Penney Corp., Inc.

       

5.875% due 07/01/2023

      200          202   

Micron Technology, Inc.

  

7.500% due 09/15/2023

      900          964   

Millar Western Forest Products Ltd.

  

   

8.500% due 04/01/2021

      1,876          872   

Numericable SFR S.A.

  

   

6.000% due 05/15/2022 (i)

      500          488   

7.375% due 05/01/2026

      1,538          1,523   

OGX Austria GmbH

  

   

8.375% due 04/01/2022 ^

      3,300          0   

8.500% due 06/01/2018 ^

      3,700          0   

Perstorp Holding AB

  

   

8.750% due 05/15/2017 (i)

        4,600          4,601   

Petroleos de Venezuela S.A.

  

   

6.000% due 11/15/2026

      130          46   

Prime Security Services Borrower LLC

  

9.250% due 05/15/2023 (i)

      2,600          2,762   

Reynolds Group Issuer, Inc.

  

4.127% due 07/15/2021

      600          603   

7.000% due 07/15/2024

      400          413   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP     100          145   

Sabine Pass Liquefaction LLC

  

5.875% due 06/30/2026

  $     1,900          1,900   

Sequa Corp.

  

7.000% due 12/15/2017 (i)

      2,700          716   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017 (i)

      7,650          7,535   

Spirit Issuer PLC

  

6.582% due 12/28/2027

  GBP     2,175          3,004   

Tembec Industries, Inc.

  

9.000% due 12/15/2019 (i)

  $     1,800          1,404   

Times Square Hotel Trust

  

8.528% due 08/01/2026 (i)

      4,726          5,671   

UAL Pass-Through Trust

  

9.750% due 07/15/2018 (i)

      970          1,004   

10.400% due 05/01/2018 (i)

      504          519   

UCP, Inc.

  

8.500% due 10/21/2017

      2,800          2,819   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     730          971   

7.395% due 03/28/2024

      500          639   
       

 

 

 
            78,597   
       

 

 

 
UTILITIES 8.2%   

Frontier Communications Corp.

  

10.500% due 09/15/2022

  $     450          478   

11.000% due 09/15/2025 (i)

      450          469   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022

      200          198   

6.000% due 11/27/2023 (i)

      1,350          1,447   

Gazprom OAO Via Gaz Capital S.A.

  

5.999% due 01/23/2021

      381          413   

6.510% due 03/07/2022 (i)

      3,400          3,731   

6.605% due 02/13/2018

  EUR     100          120   

8.625% due 04/28/2034

  $     1,081          1,370   

9.250% due 04/23/2019

      100          116   

Illinois Power Generating Co.

  

6.300% due 04/01/2020 (i)

      4,295          1,697   

7.950% due 06/01/2032 (i)

      4,033          1,573   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      3,925          1,138   

Petrobras Global Finance BV

  

5.750% due 01/20/2020 (i)

      570          551   

6.250% due 03/17/2024

      20          18   

6.250% due 12/14/2026

  GBP     600          642   

6.625% due 01/16/2034

      200          200   

7.875% due 03/15/2019 (i)

  $     9,700          10,039   

Sierra Hamilton LLC

  

12.250% due 12/15/2018

      200          156   
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   45


Schedule of Investments PIMCO Income Opportunity Fund (Cont.)

 

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

Sprint Capital Corp.

  

6.875% due 11/15/2028

  $     200      $     158   

Sprint Corp.

  

7.125% due 06/15/2024 (i)

      4,082          3,250   

7.875% due 09/15/2023

      165          136   
       

 

 

 
          27,900   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $213,646)

   

        186,469   
       

 

 

 
CONVERTIBLE BONDS & NOTES 1.5%   
BANKING & FINANCE 1.5%   

SL Green Operating Partnership LP

  

3.000% due 10/15/2017 (i)

      3,800          5,177   
       

 

 

 

Total Convertible Bonds & Notes
(Cost $3,794)

   

      5,177   
       

 

 

 
MUNICIPAL BONDS & NOTES 0.9%   
ILLINOIS 0.1%   

Chicago, Illinois General Obligation Bonds, Series 2015

  

7.375% due 01/01/2033

      120          127   

7.750% due 01/01/2042

      210          213   
       

 

 

 
          340   
       

 

 

 
IOWA 0.0%   

Iowa Tobacco Settlement Authority Revenue Bonds, Series

   

2005 6.500% due 06/01/2023

      155          158   
       

 

 

 
WEST VIRGINIA 0.8%   

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

   

7.467% due 06/01/2047

      2,690          2,565   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $3,062)

   

        3,063   
       

 

 

 
U.S. GOVERNMENT AGENCIES 0.4%   

Fannie Mae

  

4.000% due 10/01/2040

      39          42   

Freddie Mac

  

0.100% due 05/25/2020 (a)

        47,969          134   

0.841% due
10/25/2020 (a)(i)

      28,018          706   

5.103% due 10/25/2028

      600          586   
       

 

 

 

Total U.S. Government Agencies
(Cost $1,520)

   

      1,468   
       

 

 

 
U.S. TREASURY OBLIGATIONS 0.1%   

U.S. Treasury Floating Rate Notes

  

0.450% due 04/30/2018

      400          400   
       

 

 

 

Total U.S. Treasury Obligations
(Cost $400)

   

      400   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 42.9%   

Adjustable Rate Mortgage Trust

  

2.956% due 01/25/2036

      200          172   

Auburn Securities PLC

  

0.912% due 10/01/2041

  GBP     228          292   

Banc of America Alternative Loan Trust

  

15.943% due 09/25/2035 ^

  $     1,882          2,314   

Banc of America Funding Trust

  

2.669% due 12/20/2036

      182          183   

2.907% due 12/20/2034

      1,054          975   

3.043% due 03/20/2036 ^

      1,326          1,146   

3.144% due 10/20/2046 ^

      645          479   

Banc of America Mortgage Trust

  

2.747% due 10/20/2046 ^

      180          109   

2.837% due 09/25/2034

      214          209   

5.750% due 08/25/2034

      373          392   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Bayview Commercial Asset Trust

  

0.673% due 03/25/2037

  $     195      $     172   

Bear Stearns Adjustable Rate Mortgage Trust

  

2.569% due 09/25/2034

      116          108   

2.913% due 03/25/2035

      475          447   

2.938% due 09/25/2034

      111          108   

3.031% due 08/25/2047 ^

      498          405   

3.110% due 10/25/2036 ^

      1,256          1,061   

4.692% due 06/25/2047 ^

      367          328   

Bear Stearns ALT-A Trust

  

0.773% due
06/25/2046 ^(i)

      4,142          2,941   

1.153% due 01/25/2035 (i)

      867          842   

2.747% due 04/25/2035

      417          312   

2.791% due 11/25/2035

      79          62   

2.860% due
08/25/2036 ^(i)

      3,388          2,921   

2.999% due
05/25/2036 ^(i)

      1,050          803   

3.062% due 08/25/2036 ^

      637          471   

3.123% due 05/25/2035

      659          553   

3.828% due 09/25/2034

      674          666   

3.877% due 11/25/2036 ^

      668          509   

4.012% due 07/25/2035 ^

      412          340   

Bluestone Securities PLC

  

0.796% due 06/09/2043

  GBP     397          473   

BRAD Resecuritization Trust

  

2.180% due 03/12/2021

  $       3,302          242   

6.550% due 03/12/2021

      617          637   

CBA Commercial Small Balance Commercial Mortgage

  

5.540% due 01/25/2039 ^

      1,943            1,443   

Celtic Residential Irish Mortgage Securitisation PLC

  

0.001% due 11/13/2047 (i)

  EUR     538          557   

Chase Mortgage Finance Trust

  

5.500% due 11/25/2021 ^

  $     1,036          838   

6.000% due 03/25/2037 ^

      1,034          890   

Citigroup Global Markets Mortgage Securities, Inc.

  

6.500% due 02/25/2029

      374          378   

Citigroup Mortgage Loan Trust, Inc.

  

3.038% due
03/25/2037 ^(i)

      2,033          1,619   

5.500% due 11/25/2035 ^

      823          730   

Commercial Mortgage Trust

  

6.302% due 07/10/2046 (i)

      2,170          2,373   

Countrywide Alternative Loan Trust

  

0.703% due 06/25/2037 ^

      1,313          682   

0.778% due 11/20/2035 (i)

      7,939          6,574   

0.803% due 05/25/2036 ^(i)

      2,242          1,087   

0.803% due 06/25/2036 ^(i)

      1,937          1,026   

5.500% due 10/25/2035 ^

      430          377   

5.500% due 12/25/2035 ^(i)

      2,090          1,708   

5.750% due 05/25/2036 ^

      394          291   

6.000% due 11/25/2035 ^

      442          168   

6.000% due 04/25/2036 ^

      418          337   

6.000% due 04/25/2037 ^

      754          483   

6.000% due
05/25/2037 ^(i)

      1,566          1,214   

6.250% due 08/25/2037 ^

      437          370   

6.500% due 09/25/2032 ^

      460          444   

6.500% due 07/25/2035 ^

      904          577   

6.500% due
06/25/2036 ^(i)

      625          415   

Countrywide Home Loan Mortgage Pass-Through Trust

  

1.093% due 03/25/2035 (i)

      826          678   

2.759% due
11/25/2035 ^(i)

      3,071          2,488   

2.762% due 08/20/2035 ^

      135          117   

2.807% due
03/25/2037 ^(i)

      1,502          1,164   

2.902% due
09/25/2047 ^

      1,069          892   

3.002% due
08/25/2034 ^

      78          67   

3.011% due 06/20/2035

      325          293   

5.500% due 08/25/2035 ^

      115          98   

Credit Suisse Commercial Mortgage Trust

  

6.500% due 07/26/2036 ^

      552          307   

Credit Suisse First Boston Mortgage Securities Corp.

  

7.500% due 05/25/2032 (i)

      1,725          1,843   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

1.053% due 07/25/2036 ^

      683          250   

5.896% due 04/25/2036

      577          410   

6.500% due 05/25/2036 ^

      483          301   

Debussy PLC

  

5.930% due 07/12/2025

  GBP     7,000          9,295   

Deutsche ALT-A Securities, Inc.

  

0.603% due 02/25/2047

  $     770          546   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Deutsche ALT-B Securities, Inc.

  

6.250% due 07/25/2036 ^

  $     130      $     101   

Deutsche Mortgage Securities, Inc. Mortgage Loan Trust

   

5.500% due 09/25/2033

      191          198   

Downey Savings & Loan Association Mortgage Loan Trust

   

0.628% due 04/19/2047 ^

      518          197   

EMF-NL BV

  

0.749% due 07/17/2041

  EUR     800          711   

1.999% due 10/17/2041

      1,000          1,054   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

      1,904          1,890   

First Horizon Alternative Mortgage Securities Trust

  

2.513% due 08/25/2035 ^

  $     206          49   

2.589% due 11/25/2036 ^

      1,809          1,397   

2.672% due 05/25/2036 ^

      2,326          1,876   

2.847% due 02/25/2036

      235          188   

6.250% due 11/25/2036 ^

      145          111   

First Horizon Mortgage Pass-Through Trust

  

2.661% due 07/25/2037 ^

      167          139   

2.731% due
01/25/2037 ^(i)

      1,291          1,136   

GMAC Mortgage Corp. Loan Trust

  

3.406% due 07/19/2035

      104          95   

3.410% due 06/25/2034

      240          234   

3.500% due 06/25/2034

      202          201   

GreenPoint Mortgage Funding Trust

  

0.633% due 01/25/2037

      1,492          1,202   

GS Mortgage Securities Trust

  

1.585% due 08/10/2043 (a)

      8,237          400   

6.215% due 08/10/2043 (i)

      2,100          2,211   

GSR Mortgage Loan Trust

  

0.903% due 07/25/2037 ^

      515          307   

2.943% due
01/25/2036 ^(i)

      1,737          1,620   

3.146% due 12/25/2034

      40          39   

6.000% due 09/25/2034

      188          188   

HarborView Mortgage Loan Trust

  

0.638% due 02/19/2046 (i)

      2,231          1,700   

0.658% due 11/19/2036 (i)

      4,222          3,109   

1.008% due 06/19/2034

      348          324   

1.088% due 01/19/2035 (i)

      337          288   

2.959% due 08/19/2036 ^

      300          223   

HomeBanc Mortgage Trust

  

0.703% due 03/25/2035

      441          375   

IM Pastor Fondo de Titulizacion de Activos

  

0.009% due 03/22/2044

  EUR     778          648   

Impac CMB Trust

  

0.973% due 11/25/2035 ^

  $     411          337   

IndyMac Mortgage Loan Trust

  

0.683% due 04/25/2035

      237          205   

1.253% due 08/25/2034

      221          187   

1.313% due 09/25/2034

      533          484   

2.619% due 06/25/2037 ^

      436          332   

2.972% due 12/25/2036 ^

      1,861          1,642   

3.113% due
05/25/2037 ^(i)

      4,868          3,898   

4.419% due 11/25/2036 ^

      1,355          1,200   

4.464% due 05/25/2037 ^

      34          5   

JPMorgan Alternative Loan Trust

  

2.939% due 05/25/2036 ^

      585          450   

5.500% due 11/25/2036 ^

      7          5   

JPMorgan Commercial Mortgage-Backed Securities Trust

   

5.702% due 03/18/2051 (i)

      4,000          4,046   

JPMorgan Mortgage Trust

  

2.708% due 10/25/2036 ^

      72          61   

2.887% due 07/25/2035

      186          184   

3.033% due 05/25/2036 ^

      1,013          904   

6.000% due 08/25/2037 ^

      824          716   

Landmark Mortgage Securities PLC

  

0.088% due 06/17/2038

  EUR     298          313   

0.799% due 06/17/2038

  GBP     782          984   

Lehman Mortgage Trust

  

5.930% due 04/25/2036 (i)

  $     463          414   

6.000% due
05/25/2037 ^(i)

      2,021          1,963   
 

 

46   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

MASTR Adjustable Rate Mortgages Trust

  

1.177% due 01/25/2047 ^

  $     506      $     354   

3.279% due 10/25/2034

      1,021          900   

Morgan Stanley Mortgage Loan Trust

  

2.836% due
07/25/2035 ^(i)

      2,251          1,848   

2.941% due 01/25/2035 ^

      329          160   

5.750% due 12/25/2035 ^

      586          565   

6.000% due 08/25/2037 ^

      362          315   

Prime Mortgage Trust

  

0.803% due 06/25/2036 ^

        4,230          2,304   

7.000% due 07/25/2034

      234          224   

Regal Trust

  

2.178% due 09/29/2031

      17          16   

Residential Accredit Loans, Inc. Trust

  

0.663% due 06/25/2037

      2,552          1,864   

5.500% due 04/25/2037

      157          128   

6.000% due 08/25/2035 ^

      760          689   

6.000%
due 01/25/2037 ^(i)

      738          613   

Residential Asset Securitization Trust

  

6.000% due 03/25/2037 ^

      601          408   

6.000% due 07/25/2037 (i)

      8,914          6,168   

Residential Funding Mortgage Securities, Inc. Trust

  

4.546% due 07/27/2037 ^

      399          349   

6.000% due 06/25/2037 ^

      611          536   

Royal Bank of Scotland Capital Funding Trust

  

5.223% due 08/16/2048 (i)

      2,000          2,005   

Sequoia Mortgage Trust

  

3.070% due 01/20/2038 ^

      451          387   

Structured Adjustable Rate Mortgage Loan Trust

  

2.704% due 08/25/2034

      31          30   

2.821% due 01/25/2036 ^

      1,490          1,126   

4.361% due 11/25/2036 ^

      597          573   

Structured Asset Mortgage Investments Trust

  

0.663% due
08/25/2036 ^(i)

      2,892          2,174   

0.683% due 05/25/2045

      203          177   

Structured Asset Securities Corp. Mortgage Pass-Through Certificates

   

2.756% due 01/25/2034

      549          518   

TBW Mortgage-Backed Trust

  

6.000% due 07/25/2036 ^

      403          292   

Theatre Hospitals PLC

  

4.338% due 10/15/2031

  GBP     260          320   

WaMu Commercial Mortgage Securities Trust

  

5.972% due 03/23/2045 (i)

  $     5,000          4,995   

WaMu Mortgage Pass-Through Certificates Trust

  

2.165% due 11/25/2036 ^

      439          374   

2.190% due 07/25/2046 (i)

      2,489          2,221   

2.363% due 03/25/2037 ^

      709          566   

2.482% due 03/25/2033

      116          115   

2.496% due 07/25/2037 ^

      1,653          1,489   

2.511% due
06/25/2037 ^(i)

      2,103          1,804   

2.723% due
07/25/2037 ^(i)

      3,635          2,941   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

1.287% due 10/25/2046 ^

      639          453   

1.600% due 06/25/2033

      67          66   

Wells Fargo Mortgage-Backed Securities Trust

  

0.953% due 07/25/2037 ^

      372          323   

2.751% due 10/25/2036 ^

      37          34   

2.796% due 09/25/2036 ^

      37          34   

2.866% due 04/25/2036 ^

      40          39   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $130,463)

      145,040   
       

 

 

 
ASSET-BACKED SECURITIES 43.9%   

Access Financial Manufactured Housing Contract Trust

  

7.650% due 05/15/2021

      211          63   

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

   

2.178% due 05/25/2034

      154          115   

3.303% due 08/25/2032 (i)

      1,300          1,228   

Asset-Backed Funding Certificates Trust

  

0.603% due 10/25/2036 (i)

      8,224          7,028   

1.013% due 10/25/2033

      167          150   

1.113% due 03/25/2035 (i)

      4,431          3,559   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Associates Manufactured Housing Pass-Through Certificates

   

7.150% due 03/15/2028 (i)

  $     1,597      $     1,906   

Bear Stearns Asset-Backed Securities Trust

  

0.837% due 09/25/2034

      880          805   

2.922% due 07/25/2036

      686          447   

Bombardier Capital Mortgage Securitization Corp.

  

7.830% due 06/15/2030

      3,564          1,967   

Conseco Finance Securitizations Corp.

  

7.770% due 09/01/2031

      995          1,099   

7.960% due 05/01/2031

      1,757          1,296   

7.970% due 05/01/2032

      272          161   

8.060% due 09/01/2029

      3,080          1,840   

9.163% due 03/01/2033

      3,040          2,712   

Conseco Financial Corp.

  

6.220% due 03/01/2030

      131          138   

6.330% due 11/01/2029

      63          64   

6.530% due 02/01/2031

      1,384          1,390   

7.050% due 01/15/2027

      209          221   

7.140% due 03/15/2028

      262          273   

7.240% due 06/15/2028

      104          104   

Countrywide Asset-Backed Certificates

  

0.593% due 06/25/2035 (i)

      9,965          7,223   

0.703% due 01/25/2037 (i)

        15,575            12,289   

0.793% due 12/25/2036 ^

      783          385   

1.013% due 08/25/2032 ^

      390          335   

1.428% due 02/25/2034

      311          289   

1.728% due 02/25/2035 (i)

      3,750          3,449   

Countrywide Asset-Backed Certificates Trust

  

0.603% due 03/25/2047 (i)

      7,037          6,071   

1.233% due 11/25/2034 (i)

      528          516   

4.693% due 10/25/2035

      28          29   

Credit Suisse First Boston Mortgage Securities Corp.

  

1.503% due 02/25/2031

      2,319          2,128   

Credit-Based Asset Servicing and Securitization LLC

  

1.773% due 12/25/2035

      1,377          1,084   

First Franklin Mortgage Loan Trust

  

0.903% due 11/25/2036 (i)

      10,000          8,796   

1.346% due 07/25/2035 (i)

      8,092          6,038   

Greenpoint Manufactured Housing

  

8.300% due 10/15/2026

      914          1,016   

Home Equity Asset Trust

  

2.853% due 10/25/2033

      26          24   

Home Equity Loan Trust

  

0.683% due 04/25/2037

      6,015          3,782   

0.793% due 04/25/2037

      8,700          4,933   

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

   

0.693% due 04/25/2037 (i)

      17,407          11,123   

0.773% due 04/25/2037 (i)

      5,918          4,190   

JPMorgan Mortgage Acquisition Trust

  

0.533% due 08/25/2036

      10          5   

0.643% due 03/25/2047 (i)

      1,849          1,395   

KGS Alpha SBA Trust

  

1.022% due 04/25/2038 (a)

      1,794          66   

Lehman ABS Mortgage Loan Trust

  

0.543% due 06/25/2037 (i)

      6,746          4,057   

Long Beach Mortgage Loan Trust

  

2.928% due 03/25/2032

      346          297   

MASTR Asset-Backed Securities Trust

  

5.233% due 11/25/2035

      103          103   

Morgan Stanley Dean Witter Capital, Inc. Trust

  

1.878% due 02/25/2033

      531          509   

Morgan Stanley Home Equity Loan Trust

  

1.503% due 12/25/2034 (i)

      4,445          3,846   

NovaStar Mortgage Funding Trust

  

0.623% due 11/25/2036

      1,583          706   

Oakwood Mortgage Investors, Inc.

  

0.672% due 06/15/2032

      22          20   

Option One Mortgage Loan Trust

  

5.662% due 01/25/2037 ^

      23          23   

Origen Manufactured Housing Contract Trust

  

7.650% due 03/15/2032

      2,313          2,410   

Ownit Mortgage Loan Trust

  

3.467% due 12/25/2036

      2,610          1,449   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

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

   

2.328% due 10/25/2034

  $     1,161      $     641   

Residential Asset Mortgage Products Trust

  

1.578% due 08/25/2033

      880          785   

2.178% due 09/25/2034 (i)

      3,239          2,245   

4.020% due 04/25/2033

      3          3   

5.220% due 07/25/2034 ^

      104          100   

5.806% due 11/25/2033 (i)

      1,050          1,119   

Residential Asset Securities Corp. Trust

  

0.893% due 10/25/2035

      3,526          2,694   

4.470% due 03/25/2032

      1          1   

Saxon Asset Securities Trust

  

1.428% due 12/26/2034

      653          501   

Securitized Asset-Backed Receivables LLC Trust

  

0.683% due 02/25/2037 ^

      423          241   

1.128% due 01/25/2035

      52          47   

South Coast Funding Ltd.

  

0.890% due 01/06/2041

      45,581          12,877   

Specialty Underwriting & Residential Finance Trust

  

0.603% due 06/25/2037 (i)

      6,728          4,658   

Structured Asset Investment Loan Trust

  

0.673% due 01/25/2036 (i)

      6,922          5,229   

Structured Asset Securities Corp. Mortgage Loan Trust

  

0.753% due 06/25/2035

      500          442   

Talon Funding Ltd.

  

1.170% due 06/05/2035

      1,396          754   

UCFC Home Equity Loan Trust

  

7.750% due 04/15/2030

      741          734   

Vanderbilt Acquisition Loan Trust

  

7.330% due 05/07/2032

      332          354   
       

 

 

 

Total Asset-Backed Securities
(Cost $139,395)

   

        148,577   
       

 

 

 
SOVEREIGN ISSUES 0.5%   

Athens Urban Transportation Organisation

  

4.851% due 09/19/2016

  EUR     175          193   

Brazil Notas do Tesouro Nacional

  

10.000% due 01/01/2023

  BRL     62          18   

Costa Rica Government International Bond

  

7.000% due 04/04/2044

  $     500          501   

Republic of Greece Government International Bond

  

3.800% due 08/08/2017

  JPY     46,000          421   

4.500% due 07/03/2017

      40,000          367   

4.750% due 04/17/2019

  EUR     200          201   
       

 

 

 

Total Sovereign Issues (Cost $1,723)

  

      1,701   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
CONSUMER DISCRETIONARY 0.1%   

Tribune Media Co. ‘A’

    5,969          234   

tronc, Inc.

    1,492          21   
       

 

 

 
          255   
       

 

 

 
ENERGY 0.0%   

OGX Petroleo e Gas S.A. SP - ADR

    110,823          0   
       

 

 

 
FINANCIALS 0.0%   

TIG FinCo PLC (g)

      330,393          211   
       

 

 

 

Total Common Stocks (Cost $830)

  

      466   
       

 

 

 
WARRANTS 0.0%   
INDUSTRIALS 0.0%   

Global Geophysical Services, Inc. - Exp. 05/01/2049

    4,165          0   
       

 

 

 

Total Warrants (Cost $40)

  

      0   
       

 

 

 
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   47


Schedule of Investments PIMCO Income Opportunity Fund (Cont.)

 

       

SHARES

        MARKET
VALUE
(000S)
 
CONVERTIBLE PREFERRED SECURITIES 5.6%   
BANKING & FINANCE 5.6%        

Wells Fargo & Co.

  

7.500% (e)

      14,500      $     18,845   
       

 

 

 

Total Convertible Preferred Securities
(Cost $9,203)

   

        18,845   
       

 

 

 
PREFERRED SECURITIES 0.5%   
BANKING & FINANCE 0.5%   

AgriBank FCB

  

6.875% due 01/01/2024 (e)

      6,000          633   

Navient Corp. CPI Linked Security

  

2.853% due 03/15/2017

      32,400          802   

2.903% due 01/16/2018

      8,500          206   
       

 

 

 

Total Preferred Securities (Cost $1,060)

  

      1,641   
       

 

 

 
 
SHORT-TERM INSTRUMENTS 9.3%   

REPURCHASE AGREEMENTS (h) 7.3%

  

          24,770   
       

 

 

 
       

PRINCIPAL
AMOUNT
(000S)

        MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 2.0%   

0.169% due
07/21/2016 (c)(d)(l)

  $     6,594      $     6,593   
       

 

 

 
Total Short-Term Instruments
(Cost $31,364)
          31,363   
       

 

 

 
       
Total Investments in Securities
(Cost $551,852)
          557,766   
       
Total Investments 164.8%
(Cost $551,852)
      $       557,766   

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

(Cost or Premiums, net $(5,360))

   

  

      (2,690
Other Assets and Liabilities, net (64.0)%            (216,784
       

 

 

 
Net Assets 100.0%      $     338,292   
       

 

 

 

    

 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Payment in-kind security.
(c) Coupon represents a weighted average yield to maturity.
(d) Zero coupon security.
(e) Perpetual maturity; date shown, if applicable, represents next contractual call date.
(f) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(g)  RESTRICTED SECURITIES:

 

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

KGH Intermediate Holdco LLC 8.500% due 08/08/2019

   08/07/2014   $     4,906      $     4,627        1.37

Pinnacol Assurance 8.625% due 06/25/2034

   06/23/2014     2,900        3,216        0.95   

TIG FinCo PLC

   04/02/2015     490        211        0.06   
    

 

 

   

 

 

   

 

 

 
     $ 8,296      $ 8,054        2.38
    

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 
MBC     0.780     06/30/2016        07/01/2016      $     24,000      U.S. Treasury Notes 1.875% due 10/31/2022   $ (24,799   $ 24,000      $ 24,001   
SSB     0.010        06/30/2016        07/01/2016        770      U.S. Treasury Notes 0.750% - 2.375% due 12/31/2017 - 12/31/2020     (790     770        770   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

    $     (25,589   $     24,770      $     24,771   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

48   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (1.000 )%      02/26/2016        TBD  (2)      $        (268   $ (267
    0.900        11/24/2015        TBD  (2)        (4,824         (4,851
    1.733        05/09/2016        08/09/2016          (571     (572
    1.750        06/02/2016        09/02/2016          (624     (625
    1.976        05/17/2016        08/17/2016              (1,278     (1,281
    2.125        04/01/2016        07/01/2016          (3,083     (3,100
    2.146        07/01/2016        10/03/2016          (2,900     (2,900
    2.154        05/23/2016        08/23/2016          (3,734     (3,743
    2.476        05/15/2015        11/14/2016          (7,745     (7,770
    2.478        09/25/2015        09/26/2016          (8,957     (8,961

BOS

    2.265        07/05/2016        08/05/2016          (1,782     (1,782
    2.531        04/08/2016        07/05/2016          (1,782     (1,793

BPG

    1.390        04/11/2016        07/11/2016          (1,599     (1,604

BPS

    0.950        06/01/2016        07/05/2016        GBP        (766     (1,020
    1.450        04/26/2016        07/26/2016        $        (1,926     (1,931
    1.450        05/03/2016        07/27/2016          (2,217     (2,222

DEU

    1.400        04/21/2016        07/21/2016          (2,054     (2,060
    1.400        05/03/2016        08/03/2016          (971     (973
    1.400        05/12/2016        08/12/2016          (1,774     (1,777
    1.450        05/26/2016        08/26/2016          (2,725     (2,729
    1.450        06/01/2016        09/01/2016          (5,052     (5,058
    1.500        06/06/2016        09/02/2016          (263     (263

FOB

    2.195        06/10/2016        07/08/2016          (2,351     (2,354

JML

    1.250        06/14/2016        07/07/2016          (6,999     (7,003

JPS

    2.278        05/12/2016        08/12/2016          (6,661     (6,682

MSC

    1.000        04/08/2016        07/08/2016          (3,461     (3,469
    1.500        05/09/2016        08/02/2016          (1,270     (1,273
    1.700        06/10/2016        09/12/2016          (3,240     (3,243

RBC

    1.580        06/24/2016        12/23/2016          (2,960     (2,961
    1.600        06/09/2016        12/07/2016          (4,393     (4,397

RDR

    1.040        04/07/2016        07/07/2016          (1,089     (1,092
    1.060        05/27/2016        08/24/2016          (2,133     (2,135

RTA

    1.401        01/14/2016        07/14/2016          (451     (454
    1.662        05/02/2016        08/03/2016          (5,939     (5,955
    1.763        10/28/2015        10/27/2016          (4,727     (4,784
    2.094        01/05/2016        01/04/2017          (7,858     (7,939
    2.209        04/15/2016        04/13/2017          (5,337     (5,362
    2.211        03/15/2016        03/14/2017          (3,996     (4,023
    2.230        04/29/2016        04/27/2017          (4,791     (4,810
    2.239        04/25/2016        04/24/2017          (1,956     (1,964

SAL

    1.429        04/04/2016        07/05/2016          (4,506     (4,522
    1.558        06/13/2016        09/13/2016          (762     (763
    1.580        06/06/2016        09/07/2016          (425     (426
    1.734        04/26/2016        07/22/2016          (2,599     (2,607

SOG

    1.190        05/16/2016        08/12/2016          (655     (656
    1.290        04/18/2016        07/18/2016          (2,824     (2,832
    1.290        04/26/2016        07/25/2016          (1,036     (1,038
    1.290        05/12/2016        08/12/2016          (767     (768
    1.290        05/20/2016        08/22/2016          (1,116     (1,118
    1.310        06/01/2016        09/01/2016          (1,101     (1,102
    1.350        05/24/2016        08/24/2016          (4,140     (4,146
    2.280        01/20/2016        07/20/2016              (15,027     (15,182
    2.375        06/09/2016        12/09/2016          (7,144     (7,154

UBS

    0.500        04/26/2016        TBD  (2)      EUR        (981     (1,089
    0.540        04/18/2016        07/18/2016          (449     (498
    0.950        04/26/2016        07/13/2016        GBP        (3,728     (4,972
    1.000        06/13/2016        08/15/2016          (2,053     (2,735
    1.100        06/01/2016        09/01/2016        $        (4,121     (4,125
    1.150        05/18/2016        08/18/2016        GBP        (1,644     (2,193
    1.150        06/20/2016        09/20/2016          (2,351     (3,131
    1.250        05/03/2016        08/03/2016        $        (198     (198
    1.280        04/19/2016        07/19/2016          (3,625     (3,634
    1.300        05/03/2016        08/03/2016          (846     (848
    1.300        05/20/2016        08/22/2016          (204     (204
    1.460        06/14/2016        09/12/2016          (7,096     (7,101
    1.490        04/28/2016        07/28/2016          (1,128     (1,131
    1.540        04/28/2016        07/28/2016          (362     (363
    1.670        05/27/2016        08/29/2016          (603     (604

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   49


Schedule of Investments PIMCO Income Opportunity Fund (Cont.)

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 
    1.680     06/03/2016        09/06/2016      $          (1,125   $ (1,127
    2.080        04/05/2016        07/06/2016          (2,515     (2,528
    2.130        04/05/2016        07/06/2016          (7,373     (7,411
    2.180        04/05/2016        07/06/2016              (1,648     (1,657
    2.292        01/04/2016        07/05/2016          (2,910     (2,943
    2.342        01/04/2016        07/05/2016          (997     (1,009
    2.392        01/04/2016        07/05/2016          (1,182     (1,196
           

 

 

 

Total Reverse Repurchase Agreements

  

    $     (220,193
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(213,094) at a weighted average interest rate of 1.439%.

 

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 (received)/pledged as of June 30, 2016:

 

(i) Securities with an aggregate market value of $276,177 and cash of $240 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

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

Global/Master Repurchase Agreement

            

BCY

  $ 0      $ (34,070   $ 0       $     (34,070   $ 45,052      $     10,982   

BOS

    0        (3,575     0         (3,575     2,005        (1,570

BPG

    0        (1,604     0         (1,604     1,824        220   

BPS

    0        (5,173     0         (5,173     6,183        1,010   

DEU

    0        (12,860     0         (12,860     15,150        2,290   

FOB

    0        (2,354     0         (2,354     4,057        1,703   

JML

    0        (7,003     0         (7,003     8,732        1,729   

JPS

    0        (6,682     0         (6,682     9,888        3,206   

MBC

    24,001        0        0         24,001            (24,799     (798

MSC

    0        (7,985     0         (7,985     9,404        1,419   

RBC

    0        (7,358     0         (7,358     8,622        1,264   

RDR

    0        (3,227     0         (3,227     3,372        145   

RTA

    0        (35,291     0         (35,291     46,608        11,317   

SAL

    0        (8,318     0         (8,318     10,557        2,239   

SOG

    0        (33,996     0         (33,996     43,079        9,083   

SSB

    770        0        0         770        (790     (20

UBS

    0        (50,697     0         (50,697     61,626        10,929   
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     24,771      $     (220,193   $     0          
 

 

 

   

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

         

Asset-Backed Securities

  $ (3,100   $ (27,475   $ (18,087   $ (20,519   $ (69,181

Convertible Bonds & Notes

    0        0        0        (4,397     (4,397

Corporate Bonds & Notes

    0        (34,826     (43,616     (9,168     (87,610

Non-Agency Mortgage-Backed Securities

    0        (16,224     (14,240     (23,287     (53,751

U.S. Government Agencies

    0        0        (572     0        (572
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     (3,100   $     (78,525   $     (76,515   $     (57,371   $     (215,511
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

  $     (215,511
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(4,682) is outstanding at period end.

 

50   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

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

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

Pay/Receive
Floating Rate

 

Floating Rate Index

 

Fixed Rate

   

Maturity
Date

   

Notional
Amount

   

Market
Value

   

Unrealized
Appreciation/
(Depreciation)

     Variation Margin  
               Asset      Liability  

Pay

 

3-Month CAD-Bank Bill

    3.300     06/19/2024      CAD     13,300      $ 1,759      $ 1,141       $ 11       $ 0   

Receive

 

3-Month CAD-Bank Bill

    3.500        06/20/2044          4,400        (1,417     (1,263      0         (9

Pay

 

3-Month USD-LIBOR

    2.000        12/16/2020      $     22,100        1,031        448         1         0   

Receive

 

3-Month USD-LIBOR *

    1.750        12/21/2026          6,700        (195     (66      14         0   

Receive

 

3-Month USD-LIBOR

    2.500        06/15/2046          17,400        (2,640         (3,521      191         0   

Pay

 

6-Month AUD-BBR-BBSW

    3.500        06/17/2025      AUD     5,200        441        312         3         0   
           

 

 

   

 

 

    

 

 

    

 

 

 
            $     (1,021   $ (2,949    $     220       $     (9
           

 

 

   

 

 

    

 

 

    

 

 

 

Total Swap Agreements

            $ (1,021   $ (2,949    $ 220       $ (9
           

 

 

   

 

 

    

 

 

    

 

 

 

 

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

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of June 30, 2016:

 

Cash of $2,239 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets           Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
                Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
    Total           Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     220      $     220        $     0      $     0      $     (9)      $     (9)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  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

     07/2016      GBP     11,095      $     16,268      $ 1,498      $ 0   
     07/2016      $     9,269      EUR     8,6411        65        0   
     07/2016          24,345      GBP     18,298        14        0   
     08/2016      EUR     8,411      $     9,279        0        (65
     08/2016      GBP     18,298          24,352        0        (13

BPS

     07/2016      BRL     2,208          648        0        (39
     07/2016      EUR     416          466        4        0   
     07/2016      $     688      BRL     2,208        0        (1
     08/2016          643          2,208        38        0   

CBK

     07/2016      GBP     1,243      $     1,771        116        0   
     08/2016      EUR     1,327          1,473        0        (1
     08/2016      GBP     289          390        5        0   

DUB

     07/2016          231          338        30        0   

GLM

     07/2016      EUR     8,401          9,372        49        0   
     07/2016      GBP     7,038          10,237        868        0   
     07/2016      $     495      EUR     436        0        (11
     07/2016          1,451      GBP     1,013        0        (102
     08/2016      AUD     92      $     67        0        (2

HUS

     07/2016      $     500      GBP     379        5        0   

JPM

     07/2016      BRL     2,208      $     688        1        0   
     07/2016      GBP     227          323        21        0   
     07/2016      $     607      BRL     2,208        81        0   
     07/2016          563      GBP     397        0        (34
     08/2016      CAD     119      $     93        1        0   

SCX

     07/2016      EUR     30          34        0        0   
     07/2016      $     810      JPY     82,500        0        (11

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   51


Schedule of Investments PIMCO Income Opportunity Fund (Cont.)

 

Counterparty

  

Settlement
Month

   

Currency to
be Delivered

   

Currency to
be Received

    Unrealized Appreciation/
(Depreciation)
 
         Asset     Liability  
     08/2016      JPY     82,500      $     811      $ 11      $ 0   

UAG

     07/2016          82,500          756        0        (43
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

  $   2,807      $   (322
            

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

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

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
June 30, 2016 (2)
    Notional
Amount  (3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BOA  

Russia Government International Bond

    1.000     06/20/2024        2.753   $ 400      $ (40   $ (8   $ 0      $ (48
                 
BRC  

Gazprom S.A.

    1.900        12/20/2017        1.280        1,250        0        12        12        0   
 

JSC VTB Bank

    2.340        12/20/2017        2.180        1,250        0        4        4        0   
 

Russia Government International Bond

    1.000        06/20/2024        2.753        400        (46     (2     0        (48
 

Russia Government International Bond

    1.000        09/20/2024        2.770        300        (25     (13     0        (38
                 
CBK  

Russia Government International Bond

    1.000        06/20/2024        2.753        500        (53     (7     0        (60
 

Russia Government International Bond

    1.000        09/20/2024        2.770        300        (26     (11     0        (37
                 
FBF  

TNK-NS BP Finance S.A.

    3.150        12/20/2017        3.051            1,500        0        3        3        0   
                 
GST  

Petrobras Global Finance BV

    1.000        09/20/2020        6.191        110        (16     (5     0        (21
 

Russia Government International Bond

    1.000        03/20/2020        1.829        100        (19     16        0        (3
 

Russia Government International Bond

    1.000        06/20/2024        2.753        200        (23     (1     0        (24
                 
HUS  

Russia Government International Bond

    1.000        06/20/2019        1.505        130        (5     3        0        (2
 

Russia Government International Bond

    1.000        06/20/2024        2.753        130        (13     (3     0        (16
 

Russia Government International Bond

    1.000        09/20/2024        2.770        69        (10     1        0        (9
                 
JPM  

Russia Government International Bond

    1.000        06/20/2024        2.753        200        (18     (6     0        (24
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (294   $     (17   $     19      $     (330
           

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Counterparty   Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (3)
    Premiums
(Received)
   

Unrealized
Appreciation/

(Depreciation)

    Swap Agreements, at Value (4)  
              Asset     Liability  
GST  

ABX.HE.AA.6-1 Index

    0.320     07/25/2045      $     18,401      $ (3,664   $ 156      $ 0      $ (3,508
 

ABX.HE.PENAAA.7-1 Index

    0.090        08/25/2037        5,534        (1,077     (20     0        (1,097
         

 

 

   

 

 

   

 

 

   

 

 

 
          $     (4,741   $     136      $     0      $     (4,605
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(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 an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

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

(4) 

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

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
HUS  

Pay

  1-Year BRL-CDI     11.680     01/04/2021        BRL        71,100      $ (325   $ (146   $ 0      $ (471
                   
MYC  

Pay

  1-Year BRL-CDI     15.590        01/04/2021          20        0        1        1        0   
             

 

 

   

 

 

   

 

 

   

 

 

 
              $ (325   $     (145   $ 1      $ (471
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     (5,360   $ (26   $     20      $     (5,406
             

 

 

   

 

 

   

 

 

   

 

 

 

 

52   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

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 (received)/pledged as of June 30, 2016:

 

(l) Securities with an aggregate market value of $5,947 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

BOA

  $ 1,577       $ 0       $ 0       $ 1,577        $ (78   $ 0       $ (48   $ (126   $ 1,451      $   (1,330   $   121   

BPS

    42         0         0         42          (40     0         0        (40     2        0        2   

BRC

    0         0         16         16          0        0         (86     (86     (70     252        182   

CBK

    121         0         0         121          (1     0         (97     (98     23        0        23   

DUB

    30         0         0         30          0        0         0        0        30        (10     20   

FBF

    0         0         3         3          0        0         0        0        3        0        3   

GLM

    917         0         0         917          (115     0         0        (115     802        (960     (158

GST

    0         0         0         0          0        0         (4,653     (4,653       (4,653     5,100        447   

HUS

    5         0         0         5          0        0         (498     (498     (493     596        103   

JPM

    104         0         0         104          (34     0         (24     (58     46        0        46   

MYC

    0         0         1         1          0        0         0        0        1        0        1   

SCX

    11         0         0         11          (11     0         0        (11     0        0        0   

UAG

    0         0         0         0          (43     0         0        (43     (43     0        (43
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $  2,807       $  0       $  20       $  2,827        $  (322   $  0       $  (5,406   $  (5,728      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(5) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of June 30, 2016:

 

    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      $ 220      $ 220   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $     2,807      $ 0      $ 2,807   

Swap Agreements

    0        19        0        0        1        20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 19      $ 0      $ 2,807      $ 1      $ 2,827   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 19      $ 0      $ 2,807      $ 221      $ 3,047   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 9      $ 9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 322      $ 0      $ 322   

Swap Agreements

    0        4,935        0        0        471        5,406   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 4,935      $ 0      $ 322      $ 471      $ 5,728   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     4,935      $     0      $ 322      $     480      $     5,737   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   53


Schedule of Investments PIMCO Income Opportunity Fund (Cont.)

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended June 30, 2016:

 

    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       $ 0       $ 0       $ 0       $ (3,674    $ (3,674
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 3,012       $ 0       $ 3,012   

Swap Agreements

    0         9,491         0         0         (5,306      4,185   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 9,491       $ 0       $ 3,012       $ (5,306    $ 7,197   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 9,491       $ 0       $     3,012       $ (8,980    $ 3,523   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

  

     

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 0       $ 0       $ 0       $ (2,667    $ (2,667
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 415       $ 0       $ 415   

Swap Agreements

    0         (8,680      0         0         509         (8,171
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (8,680    $ 0       $ 415       $ 509       $ (7,756
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (8,680    $     0       $ 415       $     (2,158    $     (10,423
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 0      $ 13,334      $ 222      $ 13,556   

Corporate Bonds & Notes

  

Banking & Finance

    0        69,490            10,482        79,972   

Industrials

    0        73,228        5,369        78,597   

Utilities

    0        27,900        0        27,900   

Convertible Bonds & Notes

       

Banking & Finance

    0        5,177        0        5,177   

Municipal Bonds & Notes

       

Illinois

    0        340        0        340   

Iowa

    0        158        0        158   

West Virginia

    0        2,565        0        2,565   

U.S. Government Agencies

    0        1,468        0        1,468   

U.S. Treasury Obligations

    0        400        0        400   

Non-Agency Mortgage-Backed Securities

    0            144,161        879            145,040   

Asset-Backed Securities

    0        148,511        66        148,577   

Sovereign Issues

    0        1,701        0        1,701   

Common Stocks

  

Consumer Discretionary

        255        0        0        255   

Financials

    0        0        211        211   

Convertible Preferred Securities

  

Banking & Finance

    0        18,845        0        18,845   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Preferred Securities

  

Banking & Finance

  $ 1,008      $ 633      $ 0      $ 1,641   

Short-Term Instruments

  

Repurchase Agreements

    0        24,770        0        24,770   

U.S. Treasury Bills

    0        6,593        0        6,593   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 1,263      $ 539,274      $ 17,229      $ 557,766   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

  

Exchange-traded or
centrally cleared

    0        220        0        220   

Over the counter

    0        2,827        0        2,827   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 3,047      $ 0      $ 3,047   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

Exchange-traded or
centrally cleared

    0        (9     0        (9

Over the counter

    0        (5,728     0        (5,728
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (5,737   $ 0      $ (5,737
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     1,263      $     536,584      $     17,229      $     555,076   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

54   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 304      $ 0      $ 0      $ 1      $ 0      $ (83   $ 0      $ 0      $ 222      $ (83

Corporate Bonds & Notes

  

Banking & Finance

    23,887        1,129        (3,163     13        3        (333     0        (11,054     10,482        (8

Industrials

    6,074        2,390        (783     19        40        (56     0        (2,315     5,369        150   

Non-Agency Mortgage-Backed Securities

    1,012        0        (49     5        2        7        0        (98     879        8   

Asset-Backed Securities

    0        0        0            (15     0        (17     98        0        66        (16

Common Stocks

  

Financials

    332        0        0        0        0        (121     0        0        211        (121

Warrants

  

Industrials

    40        0        0        0        0        (40     0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     31,649      $     3,519      $     (3,995   $ 23      $     45      $     (643   $     98      $     (13,467   $     17,229      $     (70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 06/30/2016
     Valuation
Technique
     Unobservable
Inputs
  

Input Value(s)
(% Unless
Noted

Otherwise)

 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 222         Other Valuation Techniques (2)       —        —     

Corporate Bonds & Notes

          

Banking & Finance

    3,216         Proxy Pricing       Base Price      102.67   
    7,266         Reference Instrument       Spread movement      37.00-324.53 bps   

Industrials

    5,369         Proxy Pricing       Base Price      100.00-100.09   

Non-Agency Mortgage-Backed Securities

    879         Proxy Pricing       Base Price      7.30-102.63   

Asset-Backed Securities

    66         Proxy Pricing       Base Price      3.69   

Common Stocks

          

Financials

    211         Other Valuation Techniques  (2)     —        —     
 

 

 

          

Total

  $     17,229            
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 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   JUNE 30, 2016   55


Schedule of Investments PIMCO Strategic Income Fund, Inc.

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 255.7%   
BANK LOAN OBLIGATIONS 2.5%   

Energy Future Intermediate Holding Co. LLC

  

4.250% due 12/19/2016

  $     7,138      $     7,136   

iHeartCommunications, Inc.

  

7.210% due 01/30/2019

      900          661   

Sequa Corp.

  

5.250% due 06/19/2017

      487          384   
       

 

 

 

Total Bank Loan Obligations (Cost $8,517)

  

      8,181   
       

 

 

 
CORPORATE BONDS & NOTES 21.5%   
BANKING & FINANCE 13.5%   

Barclays Bank PLC

  

14.000% due 06/15/2019 (d)

  GBP     1,300          2,103   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

  $     11,221          11,221   

BNP Paribas S.A.

       

7.375% due 08/19/2025 (d)

      2,800          2,745   

Cantor Fitzgerald LP

  

7.875% due 10/15/2019

      930          1,045   

Cooperatieve Rabobank UA

  

6.875% due 03/19/2020

  EUR     2,000          2,603   

11.000% due 06/30/2019 (d)(h)

  $     4,166          4,983   

Exeter Finance Corp.

  

9.750% due 05/20/2019

      2,400          2,262   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020

      1,000          880   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (f)

      4,303          4,004   

Navient Corp.

  

5.500% due 01/15/2019

      845          852   

8.450% due 06/15/2018

      1,539          1,670   

Pinnacol Assurance

  

8.625% due 06/25/2034 (f)

      2,600          2,883   

Sberbank of Russia Via SB Capital S.A.

  

6.125% due 02/07/2022

      2,000          2,216   

SL Green Realty Corp.

  

7.750% due 03/15/2020

      4,500          5,265   
       

 

 

 
        44,732   
       

 

 

 
INDUSTRIALS 3.1%   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 (e)

      1,334          1,234   

9.000% due 02/15/2020 (e)

      66          61   

CVS Pass-Through Trust

  

7.507% due 01/10/2032

      851          1,073   

Enterprise Inns PLC

  

6.875% due 05/09/2025

  GBP     20          27   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

  $     240          104   

iHeartCommunications, Inc.

  

9.000% due 03/01/2021

      400          284   

Millar Western Forest Products Ltd.

  

8.500% due 04/01/2021

      48          22   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017

      1,000          985   

UAL Pass-Through Trust

  

6.636% due 01/02/2024 (h)

      1,777          1,886   

9.750% due 07/15/2018 (h)

      323          335   

10.400% due 05/01/2018 (h)

      757          778   

UCP, Inc.

  

8.500% due 10/21/2017

      3,700          3,725   
       

 

 

 
      10,514   
       

 

 

 
UTILITIES 4.9%   

Gazprom Neft OAO Via GPN Capital S.A.

  

6.000% due 11/27/2023

      8,050          8,629   

Gazprom OAO Via Gaz Capital S.A.

  

8.625% due 04/28/2034

      2,600          3,294   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Illinois Power Generating Co.

  

6.300% due 04/01/2020

  $     115      $     45   

7.950% due 06/01/2032

      273          107   

Petrobras Global Finance BV

  

2.768% due 01/15/2019

      3,800          3,443   

3.536% due 03/17/2020

      150          133   

5.750% due 01/20/2020

      140          135   

7.875% due 03/15/2019

      500          518   
       

 

 

 
        16,304   
       

 

 

 

Total Corporate Bonds & Notes (Cost $68,283)

      71,550   
       

 

 

 
MUNICIPAL BONDS & NOTES 0.5%   
WEST VIRGINIA 0.5%   

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

   

7.467% due 06/01/2047

      1,690          1,611   
       

 

 

 

Total Municipal Bonds & Notes (Cost $1,593)

    1,611   
       

 

 

 
U.S. GOVERNMENT AGENCIES 152.2%   

Fannie Mae

  

1.899% due 08/25/2054 (a)

      29,214          2,073   

2.385% due 09/01/2028

      7          8   

2.500% due 12/25/2027 (a)

      5,846          463   

2.565% due 12/01/2030

      177          181   

2.649% due 12/01/2028

      46          48   

2.663% due 11/01/2027

      52          53   

2.700% due 04/01/2030

      1          1   

2.875% due 03/01/2031

      62          63   

2.933% due 03/01/2032

      81          81   

4.250% due 11/25/2024 (h)

      541          595   

4.250% due 03/25/2033

      1          1   

4.500% due 09/01/2023 - 08/01/2041 (h)

      3,090          3,376   

5.000% due 12/01/2018 - 07/25/2038

      316          351   

5.000% due 01/25/2038 (h)

      12,918          14,502   

5.500% due 12/25/2016 - 07/25/2024

      25          27   

5.500% due 11/25/2032 - 04/25/2035 (h)

      8,653          9,922   

5.651% due 12/25/2042

      41          47   

5.750% due 06/25/2033

      38          44   

5.807% due 08/25/2043 (h)

      2,341          2,745   

6.000% due 02/25/2017 - 12/01/2032

      365          420   

6.000% due 12/01/2032 - 01/25/2044 (h)

      11,273          12,986   

6.233% due 02/25/2042 (h)

      671          798   

6.293% due 10/25/2042

      19          22   

6.500% due 10/01/2018 - 11/01/2047

      1,709          1,930   

6.500% due 06/01/2029 - 06/25/2044 (h)

      8,436          9,931   

6.687% due 09/25/2041 (h)

      643          735   

6.850% due 12/18/2027

      18          21   

6.922% due 10/25/2042 (h)

      483          568   

7.000% due 11/01/2016 - 01/01/2047

      1,162          1,324   

7.000% due 05/01/2017 - 03/25/2045 (h)

      1,684          1,931   

7.500% due 12/01/2017 - 03/25/2044

      546          638   

7.500% due 05/01/2022 - 06/25/2044 (h)

      1,611          1,904   

7.700% due 03/25/2023

      24          27   

7.824% due 06/19/2041 (h)

      984          1,107   

8.000% due 09/25/2021 - 06/01/2032

      217          240   

8.000% due 05/01/2030 - 10/01/2031 (h)

      189          212   

8.500% due 09/25/2021 - 06/25/2030

      347          388   

8.500% due 06/18/2027 (h)

      466          538   

9.441% due 05/15/2021

      109          117   

9.930% due 07/15/2027

      44          48   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Fannie Mae, TBA

  

3.000% due 01/01/2046 - 03/01/2046

  $     121,000      $     125,349   

3.500% due 03/01/2046 - 09/01/2046

      209,000          220,503   

4.000% due 03/01/2046

      3,000          3,216   

Freddie Mac

  

1.866% due 11/15/2038 (a)

      54,231          3,932   

1.918% due 09/15/2036 (a)

      30,474          2,128   

2.039% due 05/15/2038 (a)

      27,305          2,641   

2.097% due 08/15/2036 (a)

      8,851          702   

2.499% due 09/01/2031

      36          37   

2.512% due 12/01/2026

      6          7   

2.908% due 04/01/2033

      4          4   

5.000% due 02/15/2024

      11          12   

5.500% due 04/01/2039 - 06/15/2041 (h)

      8,992          10,242   

6.000% due 09/15/2016 - 03/15/2035

      1,019          1,171   

6.000% due 04/01/2017 - 02/15/2032 (h)

      2,763          3,179   

6.500% due 08/01/2021 - 09/01/2047

      1,354          1,584   

6.500% due 10/15/2023 - 03/25/2044 (h)

      9,208          10,718   

6.625% due 07/25/2032

      141          152   

6.900% due 09/15/2023 (h)

      380          421   

6.950% due 07/15/2021

      178          192   

7.000% due 07/01/2016 - 10/25/2043

      2,570          2,889   

7.000% due 08/01/2021 - 02/25/2043 (h)

      4,485          5,189   

7.500% due 05/15/2024 - 05/01/2032 (h)

      2,696          3,128   

7.500% due 12/01/2025 - 02/25/2042

      412          459   

7.996% due 12/25/2027

      1,600          1,528   

8.000% due 08/15/2022 -
04/15/2030

      120          135   

8.000% due 12/01/2026 (h)

      207          231   

11.203% due 03/25/2025

      398          398   

Freddie Mac, TBA

  

4.000% due 11/01/2046

      3,000          3,211   

Ginnie Mae

  

6.000% due 04/15/2029 -
11/15/2038 (h)

      2,327          2,699   

6.000% due 08/15/2031 -
12/15/2038

      53          61   

6.500% due 11/20/2024 -
10/20/2038

      114          122   

6.500% due 04/15/2032 -
05/15/2032 (h)

      760          880   

7.000% due 04/15/2024 -
06/15/2026

      60          66   

7.500% due 01/15/2017 -
03/15/2029

      243          252   

7.500% due 03/15/2026 -
01/15/2029 (h)

      669          728   

8.000% due 01/15/2017 -
11/15/2022

      11          11   

8.500% due 05/15/2022 -
02/15/2031

      11          13   

9.000% due 11/15/2016 -
11/15/2019

      67          68   

9.000% due 11/15/2019 -
01/15/2020 (h)

      46          49   

Ginnie Mae, TBA

  

4.000% due 09/01/2046

      20,000            21,494   

Small Business Administration

  

4.625% due 02/01/2025

      172          185   

5.510% due 11/01/2027

      573          650   

5.780% due 08/01/2027

      57          65   

5.820% due 07/01/2027

      57          65   

6.300% due 06/01/2018

      33          34   

7.200% due 06/01/2017

      3          3   

7.700% due 07/01/2016

      1          1   

Vendee Mortgage Trust

  

6.500% due 03/15/2029

      210          247   
 

 

56   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

6.750% due 02/15/2026 - 06/15/2026

  $     139      $     161   

7.500% due 09/15/2030

      2,970          3,665   
       

 

 

 

Total U.S. Government Agencies
(Cost $487,554)

   

        505,343   
       

 

 

 
U.S. TREASURY OBLIGATIONS 20.7%   

U.S. Treasury Notes

  

2.000% due 08/15/2025 (h)(j)

      65,700          68,729   
       

 

 

 

Total U.S. Treasury Obligations
(Cost $65,061)

    68,729   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 36.0%   

Adjustable Rate Mortgage Trust

  

2.733% due 07/25/2035

      937          842   

3.119% due 08/25/2035

      2,546          2,470   

Banc of America Mortgage Trust

  

2.953% due 02/25/2035

      30          29   

Banc of America Re-REMIC Trust

  

5.686% due 04/24/2049

      2,833          2,876   

BCAP LLC Trust

  

0.638% due 07/26/2036

      211          162   

2.737% due 10/26/2036

      3,554          3,139   

2.783% due 10/26/2033

      130          113   

2.912% due 06/26/2035

      43          39   

Bear Stearns ALT-A Trust

  

3.062% due 08/25/2036 ^

      471          348   

Bear Stearns Commercial Mortgage Securities Trust

  

7.000% due 05/20/2030

      1,282          1,325   

Celtic Residential Irish Mortgage Securitisation PLC

  

0.000% due 11/13/2047

  EUR     5,887          6,100   

0.832% due 12/14/2048

  GBP     5,336          6,424   

Citigroup Mortgage Loan Trust, Inc.

  

7.000% due 09/25/2033

  $     4          4   

Countrywide Alternative Loan Trust

  

0.663% due 07/25/2046 ^

      2,615          1,703   

5.500% due 05/25/2022 ^

      41          32   

6.250% due 08/25/2037 ^

      837          710   

6.500% due 07/25/2035 ^

      904          577   

Countrywide Home Loan Mortgage Pass-Through Trust

  

1.093% due 03/25/2035

      2,587          1,966   

3.188% due 08/25/2034

      845          759   

Countrywide Home Loan Reperforming REMIC Trust

  

7.500% due 11/25/2034

      1,545          1,505   

7.500% due 06/25/2035 ^

      257          266   

Credit Suisse Commercial Mortgage Trust

  

5.695% due 09/15/2040

      1,700          1,759   

Credit Suisse First Boston Mortgage Securities Corp.

  

1.603% due 03/25/2034 ^

      550          533   

7.000% due 02/25/2034

      632          678   

Credit Suisse Mortgage Capital Certificates

  

6.500% due 03/25/2036 ^

      1,338          830   

Emerald Mortgages PLC

  

0.000% due 07/15/2048

  EUR     3,164          3,307   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

      1,804          1,791   

GMAC Mortgage Corp. Loan Trust

  

3.312% due 08/19/2034

  $     200          190   

GSAA Trust

  

6.000% due 04/01/2034

      1,225          1,269   

GSMPS Mortgage Loan Trust

  

6.555% due 06/19/2027

      50          49   

7.000% due 06/25/2043

      3,428          3,636   

8.000% due 09/19/2027

      725          724   

GSR Mortgage Loan Trust

  

0.783% due 12/25/2034

      575          515   

2.220% due 03/25/2033

      3          3   

6.500% due 01/25/2034

      335          348   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

JPMorgan Commercial Mortgage-Backed Securities Trust

   

5.702% due 03/18/2051

  $     4,000      $     4,046   

JPMorgan Mortgage Trust

  

2.878% due 10/25/2036 ^

      3,553          3,350   

5.500% due 08/25/2022 ^

      37          36   

5.500% due 06/25/2037 ^

      609          600   

Lehman XS Trust

  

1.296% due 09/25/2047

      6,956          5,630   

Luminent Mortgage Trust

  

0.616% due 12/25/2036

      2,486          1,987   

MASTR Adjustable Rate Mortgages Trust

  

3.279% due 10/25/2034

      1,277          1,125   

MASTR Alternative Loan Trust

  

6.250% due 07/25/2036

      561          477   

6.500% due 03/25/2034

      966          1,027   

7.000% due 04/25/2034

      69          71   

MASTR Reperforming Loan Trust

  

7.000% due 05/25/2035

      4,906          4,887   

7.500% due 07/25/2035

      2,549          2,607   

Morgan Stanley Resecuritization Trust

  

2.225% due 12/26/2046

      8,080          5,929   

NAAC Reperforming Loan REMIC Trust

  

7.000% due 10/25/2034 ^

      1,316          1,363   

7.500% due 03/25/2034 ^

      3,518          3,266   

7.500% due 10/25/2034 ^

      3,947          4,192   

Newgate Funding PLC

  

0.987% due 12/15/2050

  EUR     2,577          2,459   

1.237% due 12/15/2050

      2,577          2,195   

1.572% due 12/15/2050

  GBP     3,548          4,194   

1.822% due 12/15/2050

      2,915          3,228   

RBSSP Resecuritization Trust

  

6.000% due 02/26/2037

  $     4,660          3,573   

6.250% due 12/26/2036

      6,784          4,459   

Residential Accredit Loans, Inc. Trust

  

6.000% due 08/25/2035 ^

      2,325          2,107   

Residential Asset Mortgage Products Trust

  

7.000% due 08/25/2016

      20          20   

8.500% due 10/25/2031

      627          722   

8.500% due 11/25/2031

      1,016          1,023   

Structured Asset Mortgage Investments Trust

  

1.937% due 08/25/2047 ^

      3,744          3,075   

Structured Asset Securities Corp. Mortgage Loan Trust

  

7.500% due 10/25/2036 ^

      3,412          3,059   

WaMu Mortgage Pass-Through Certificates Trust

  

2.725% due 05/25/2035

      418          415   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

7.000% due 03/25/2034

      196          206   

7.500% due 04/25/2033

      545          583   

Wells Fargo Mortgage-Backed Securities Trust

  

2.866% due 04/25/2036 ^

      50          49   

2.880% due 06/25/2035

      406          411   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $112,686)

      119,392   
       

 

 

 
ASSET-BACKED SECURITIES 16.5%   

Access Financial Manufactured Housing Contract Trust

  

7.650% due 05/15/2021

      211          62   

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

   

3.978% due 11/25/2032 ^

      330          13   

Bear Stearns Asset-Backed Securities Trust

  

0.837% due 09/25/2034

      740          677   

Citigroup Mortgage Loan Trust, Inc.

  

0.613% due 12/25/2036

      6,443          4,153   

0.673% due 12/25/2036

      3,272          1,828   

0.713% due 03/25/2037

      8,258          6,353   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Conseco Finance Securitizations Corp.

  

7.960% due 05/01/2031

  $     1,709      $     1,260   

7.970% due 05/01/2032

      272          161   

Conseco Financial Corp.

  

6.530% due 02/01/2031

      162          163   

7.050% due 01/15/2027

      209          221   

Countrywide Asset-Backed Certificates

  

0.583% due 12/25/2036 ^

      4,446          4,026   

0.593% due 06/25/2047 ^

      10,481          7,546   

0.653% due 06/25/2037 ^

      2,936          1,998   

0.653% due 06/25/2047

      7,414          5,060   

0.653% due 09/25/2047

      3,634          2,303   

0.743% due 06/25/2037

      8,449          5,784   

4.919% due 07/25/2036

      11,700          10,617   

Credit-Based Asset Servicing and Securitization LLC

  

6.020% due 12/25/2037

      843          883   

Green Tree Servicing LLC

  

8.970% due 04/25/2038

      449          455   

Greenpoint Manufactured Housing

  

8.300% due 10/15/2026

      914          1,016   

Oakwood Mortgage Investors, Inc.

  

0.672% due 06/15/2032

      22          20   

Residential Asset Mortgage Products Trust

  

8.500% due 12/25/2031

      21          17   
       

 

 

 

Total Asset-Backed Securities (Cost $57,434)

    54,616   
       

 

 

 
SOVEREIGN ISSUES 1.5%   

Brazil Notas do Tesouro Nacional

  

10.000% due 01/01/2025

  BRL     16,200          4,532   

Costa Rica Government International Bond

  

7.000% due 04/04/2044

  $     500          500   
       

 

 

 

Total Sovereign Issues (Cost $6,926)

  

      5,032   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
ENERGY 0.1%   

SemGroup Corp. ‘A’

      7,966          259   
       

 

 

 

Total Common Stocks (Cost $221)

  

      259   
       

 

 

 
SHORT-TERM INSTRUMENTS 4.2%   
REPURCHASE AGREEMENTS (g) 3.6%   
          12,099   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
U.S. TREASURY BILLS 0.6%       

0.238% due 07/21/2016 -
12/08/2016 (b)(c)(l)

  $     2,082          2,081   
       

 

 

 
Total Short-Term Instruments
(Cost $14,180)
    14,180   
       

 

 

 
       
Total Investments in Securities
(Cost $822,455)
    848,893   
       
Total Investments 255.7%
(Cost $822,455)
      $       848,893   

Financial Derivative
Instruments (i)(k) 0.4%

(Cost or Premiums, net $(701))

    1,214   
Other Assets and Liabilities, net (156.1%)       (518,056
       

 

 

 
Net Assets 100.0%      $     332,051   
       

 

 

 
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   57


Schedule of Investments PIMCO Strategic Income Fund, Inc. (Cont.)

 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*, EXCEPT NUMBER OF CONTRACTS):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Coupon represents a weighted average yield to maturity.
(c) Zero coupon security.
(d) Perpetual maturity; date shown, if applicable, represents next contractual call date.
(e) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(f)  RESTRICTED SECURITIES:

 

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

KGH Intermediate Holdco LLC

   8.500%     08/08/2019        08/07/2014        $    4,246      $     4,004        1.20

Pinnacol Assurance

   8.625     06/25/2034        06/23/2014        2,600        2,883        0.87   
        

 

 

   

 

 

   

 

 

 
           $    6,846      $     6,887        2.07
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(g)  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)
 
BCY     0.750     06/30/2016        07/01/2016      $     8,600      U.S. Treasury Notes 1.250% due 06/30/2023   $ (8,784   $ 8,600      $ 8,600   
SSB     0.010        06/30/2016        07/01/2016        3,499      U.S. Treasury Notes 1.000% due 05/15/2018     (3,570     3,499        3,499   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

        $     (12,354   $     12,099      $     12,099   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

DEU

    0.700     04/08/2016        07/08/2016      $ (4,623   $ (4,631
    0.720        04/14/2016        07/14/2016        (27,689     (27,732
    0.720        04/28/2016        07/28/2016        (3,896     (3,901
    0.750        04/14/2016        07/14/2016            (29,283     (29,331
    0.750        04/27/2016        07/27/2016        (25,520     (25,555
    0.800        05/03/2016        08/03/2016        (5,125     (5,132
    1.400        05/12/2016        08/12/2016        (2,748     (2,753
    1.450        06/01/2016        09/01/2016        (2,022     (2,024
    1.500        06/06/2016        09/02/2016        (746     (747
    1.500        06/09/2016        09/09/2016        (1,525     (1,526
         

 

 

 

Total Reverse Repurchase Agreements

  

      $     (103,332
         

 

 

 

 

SALE-BUYBACK TRANSACTIONS:

 

Counterparty   Borrowing
Rate  (2)
    Borrowing
Date
    Maturity
Date
    Amount
Borrowed  (2)
    Payable for
Sale-Buyback
Transactions (3)
 

GSC

    0.620     06/02/2016        07/05/2016      $ (1,735   $ (1,736
    0.630        06/16/2016        07/15/2016            (38,149     (38,159
         

 

 

 

Total Sale-Buyback Transactions

  

      $     (39,895
         

 

 

 

 

MORTGAGE DOLLAR ROLLS:

 

Counterparty   Borrowing
Rate  (2)
    Borrowing
Date
    Maturity
Date
    Amount
Received
    Amount
Borrowed  (2)
 

BOS

    2.335     07/14/2016        08/10/2016      $ 4,111      $ (4,111

FOB

    1.507        07/14/2016        08/10/2016            59,044            (59,044

 

58   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

Counterparty   Borrowing
Rate  (2)
    Borrowing
Date
    Maturity
Date
    Amount
Received
    Amount
Borrowed  (2)
 
    1.582     07/14/2016        08/10/2016      $ 54,848      $ (54,848
    2.310        07/14/2016        08/10/2016            120,868        (120,868

GSC

    1.582        07/14/2016        08/10/2016        11,598        (11,598

MSC

    1.507        07/14/2016        08/10/2016        10,542        (10,542

WFS

    1.164        07/20/2016        08/17/2016        7,500        (7,500
       

 

 

   

 

 

 

Total Mortgage Dollar Rolls

  

    $     268,511      $     (268,511
       

 

 

   

 

 

 

 

(2) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(504,815) at a weighted average interest rate of 1.792%.

(3) 

Payable for sale-buyback transactions includes $(9) of deferred price drop.

 

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 (received)/pledged as of June 30, 2016:

 

(h) Securities with an aggregate market value of $146,356 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

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

Global/Master Repurchase Agreement

               

BCY

  $ 8,600      $ 0      $ 0      $ 0      $ 0      $ 8,600      $ (8,785   $ (185

DEU

    0        (103,332     0        0        0            (103,332         106,291            2,959   

SSB

    3,499        0        0        0        0        3,499        (3,570     (71

Master Securities Forward Transaction Agreement

               

BOS

    0        0        0        4,111        (4,111     0        0        0   

FOB

    0        0        0        234,760            (234,760     0        0        0   

GSC

    0        0            (39,895     11,598        (11,598     (39,895     39,545        (350

MSC

    0        0        0        10,542        (10,542     0        0        0   

WFS

    0        0        0        7,500        (7,500     0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Total Borrowings and Other Financing Transactions

  $     12,099      $     (103,332   $ (39,895   $     268,511      $ (268,511      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the even of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

         

Corporate Bonds & Notes

  $ 0      $ 0      $ (7,051   $ 0      $ (7,051

U.S. Government Agencies

    0        (91,150     (5,131     0        (96,281
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 0      $ (91,150   $ (12,182   $ 0      $ (103,332

Sale-Buyback Transactions

         

U.S. Treasury Obligations

    0        (39,895     0        0        (39,895
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 0      $ (39,895   $ 0      $ 0      $ (39,895
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0      $     (131,045   $     (12,182   $     0      $     (143,227
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements and sale-buyback financing transactions

  

  $ (143,227
         

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   59


Schedule of Investments PIMCO Strategic Income Fund, Inc. (Cont.)

 

 

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

 

FUTURES CONTRACTS:

 

Description   Type     Expiration
Month
    # of
Contracts
    Unrealized
Appreciation
    Variation Margin  
          Asset     Liability  

U.S. Treasury 2-Year Note September Futures

    Long        09/2016        138      $ 210      $ 20      $ 0   
       

 

 

   

 

 

   

 

 

 

Total Futures Contracts

        $     210      $     20      $     0   
       

 

 

   

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

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

Pay

 

3-Month CAD-Bank Bill

    3.300     06/19/2024        CAD    11,200      $ 1,481      $ 961      $ 9       $ 0   

Receive

 

3-Month CAD-Bank Bill

    3.500        06/20/2044        3,800        (1,223     (1,091     0         (8

Pay

 

3-Month USD-LIBOR

    2.500        06/17/2022        $    31,500        2,613        1,778        0         (14

Receive

 

3-Month USD-LIBOR *

    1.750        12/21/2023        65,200        (2,263     (501     68         0   

Receive

 

3-Month USD-LIBOR *

    1.750        12/21/2026        70,400        (2,009     (661     150         0   

Receive

 

3-Month USD-LIBOR

    2.500        06/15/2046        50,100        (7,612         (10,139         549         0   
         

 

 

   

 

 

   

 

 

    

 

 

 
          $ (9,013   $ (9,653   $ 776       $ (22
         

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

          $     (9,013   $ (9,653   $ 776       $     (22
         

 

 

   

 

 

   

 

 

    

 

 

 

 

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

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of June 30, 2016:

 

(j) Securities with an aggregate market value of $11,739 and cash of $2,154 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

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

Total Exchange-Traded or Centrally Cleared

  $     0      $     20      $     776      $     796        $     0      $     0      $     (22   $     (22
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  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

     07/2016      GBP     12,674      $     18,584      $ 1,711      $ 0   
     07/2016      $     18,625      EUR     16,901        131        0   
     07/2016          16,477      GBP     12,384        9        0   
     08/2016      EUR     16,901      $     18,645        0        (130
     08/2016      GBP     12,384          16,481        0        (9

BPS

     07/2016      BRL     16,676          5,196        4        0   
     07/2016      $     4,893      BRL     16,676        298        0   
     08/2016      BRL     16,676      $     4,855        0        (291

CBK

     07/2016      GBP     69          100        8        0   
     07/2016      $     261      EUR     232        0        (4
     07/2016          543      GBP     382        0        (34
     08/2016      CAD     109      $     84        0        0   

GLM

     07/2016      EUR     16,987          18,950        99        0   

JPM

     07/2016      BRL     16,676          4,581        0        (611
     07/2016      GBP     23          33        2        0   
     07/2016      $     5,196      BRL     16,676        0        (4
     08/2016      CAD     107      $     83        1        0   

MSB

     07/2016      EUR     146          164        2        0   
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

        $     2,265      $     (1,083
            

 

 

   

 

 

 

 

60   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

PURCHASED OPTIONS:

 

OPTIONS ON SECURITIES

 

Counterparty   Description   Strike
Price
    Expiration
Date
    Notional
Amount
    Cost     Market
Value
 
DUB  

Put - OTC Fannie Mae 3.500% due 08/01/2046

  $ 74.625        08/04/2016        $    100,000      $ 4      $ 0   
JPM  

Put - OTC Fannie Mae 3.000% due 07/01/2046

    71.000        07/07/2016        7,000        0        0   
 

Put - OTC Fannie Mae 3.000% due 07/01/2046

    73.000        07/07/2016        34,000        1        0   
 

Put - OTC Fannie Mae 3.000% due 08/01/2046

    71.000        08/04/2016        66,000        3        0   
 

Put - OTC Fannie Mae 3.500% due 07/01/2046

    75.000        07/07/2016        10,000        1        0   
 

Call - OTC Fannie Mae 4.000% due 07/01/2046

        123.000        07/07/2016        3,000        0        0   
         

 

 

   

 

 

 
          $ 9      $ 0   
         

 

 

   

 

 

 

Total Purchased Options

  

    $     9      $     0   
         

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

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

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
June 30, 2016 (2)
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BOA  

Indonesia Government International Bond

    1.000     06/20/2019        1.105   $ 100      $ (3   $ 3      $ 0      $ 0   
BPS  

Petrobras Global Finance BV

    1.000        12/20/2019        5.720            3,100        (306     (150     0        (456
DUB  

Indonesia Government International Bond

    1.000        06/20/2019        1.105        300        (11     10        0        (1
GST  

Petrobras Global Finance BV

    1.000        09/20/2020        6.191        10        (1     (1     0        (2
HUS  

Petrobras Global Finance BV

    1.000        12/20/2019        5.720        3,400        (338     (162     0        (500
JPM  

Indonesia Government International Bond

    1.000        06/20/2019        1.105        800        (27     25        0        (2
 

Russia Government International Bond

    1.000        12/20/2020        2.128        200        (23     13        0        (10
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (709   $     (262   $     0      $     (971
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(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 an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

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

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
  Premiums
(Received)
    Unrealized
Appreciation
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Pay

 

1-Year BRL-CDI

    15.590%        01/04/2021      BRL   7,200   $ (1   $ 230      $ 229      $ 0   
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     (710   $     (32   $     229      $     (971
             

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   61


Schedule of Investments PIMCO Strategic Income Fund, Inc. (Cont.)

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of June 30, 2016:

 

(l) Securities with an aggregate market value of $1,218 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (4)
 

BOA

  $ 1,851       $ 0       $ 0       $ 1,851        $ (139   $ 0       $ 0      $ (139   $   1,712      $   (1,570   $ 142   

BPS

    302         0         229         531          (291     0         (456     (747     (216     252        36   

CBK

    8         0         0         8          (38     0         0        (38     (30     0        (30

DUB

    0         0         0         0          0        0         (1     (1     (1     (20     (21

GLM

    99         0         0         99          0        0         0        0        99        (260       (161

GST

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

HUS

    0         0         0         0          0        0         (500     (500     (500     655        155   

JPM

    3         0         0         3          (615     0         (12     (627     (624     311        (313

MSB

    2         0         0         2          0        0         0        0        2        0        2   
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $   2,265       $   0       $   229       $   2,494        $   (1,083   $   0       $   (971   $   (2,054      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of June 30, 2016:

 

    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

           

Futures

  $ 0      $ 0      $ 0      $ 0      $ 20      $ 20   

Swap Agreements

    0        0        0        0        776        776   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $ 0      $ 796      $ 796   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 2,265      $ 0      $ 2,265   

Swap Agreements

    0        0        0        0        229        229   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $ 2,265      $ 229      $ 2,494   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $ 2,265      $     1,025      $ 3,290   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 22      $ 22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 1,083      $ 0      $ 1,083   

Swap Agreements

    0            971        0        0        0        971   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $     971      $ 0      $ 1,083      $ 0      $ 2,054   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     971      $     0      $     1,083      $ 22      $     2,076   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

62   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended June 30, 2016:

 

    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

           

Futures

  $ 0      $ 0      $ 0      $ 0      $ 48      $ 48   

Swap Agreements

    0        0        0        0        (19,251     (19,251
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $ 0      $ (19,203   $ (19,203
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 2,922      $ 0      $ 2,922   

Purchased Options

    0        0        0        0        (46     (46

Swap Agreements

    0        141        0        0        29        170   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 141      $ 0      $ 2,922      $ (17   $ 3,046   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 141      $ 0      $ 2,922      $     (19,220   $ (16,157
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

     

Exchange-traded or centrally cleared

           

Futures

  $ 0      $ 0      $ 0      $ 0      $ 180      $ 180   

Swap Agreements

    0        0        0        0        (9,048     (9,048
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $ 0      $ (8,868   $ (8,868
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 1,275      $ 0      $ 1,275   

Purchased Options

    0        0        0        0        (6     (6

Swap Agreements

    0        (178     0        0        230        52   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (178   $ 0      $ 1,275      $ 224      $ 1,321   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     (178   $     0      $     1,275      $ (8,644   $     (7,547
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 0      $ 8,181      $ 0      $ 8,181   

Corporate Bonds & Notes

       

Banking & Finance

    0        35,583        9,149        44,732   

Industrials

    0        6,789            3,725        10,514   

Utilities

    0        16,304        0        16,304   

Municipal Bonds & Notes

       

West Virginia

    0        1,611        0        1,611   

U.S. Government Agencies

    0        505,343        0        505,343   

U.S. Treasury Obligations

    0        68,729        0        68,729   

Non-Agency Mortgage-Backed Securities

    0            119,392        0            119,392   

Asset-Backed Securities

    0        54,616        0        54,616   

Sovereign Issues

    0        5,032        0        5,032   

Common Stocks

       

Energy

    259        0        0        259   

Short-Term Instruments

       

Repurchase Agreements

    0        12,099        0        12,099   

U.S. Treasury Bills

    0        2,081        0        2,081   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     259      $     835,760      $ 12,874      $ 848,893   
 

 

 

   

 

 

   

 

 

   

 

 

 
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Financial Derivative Instruments - Assets

  

Exchange-traded or centrally cleared

  $ 20      $ 776      $ 0      $ 796   

Over the counter

    0        2,494        0        2,494   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 20      $ 3,270      $ 0      $ 3,290   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (22     0        (22

Over the counter

    0        (2,054     0        (2,054
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (2,076   $ 0      $ (2,076
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     279      $     836,954      $     12,874      $     850,107   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   63


Schedule of Investments PIMCO Strategic Income Fund, Inc. (Cont.)

 

June 30, 2016

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

                 

Corporate Bonds & Notes

                   

Banking & Finance

  $ 21,621      $ 1,093      $ (2,056   $ 12      $ 5      $ (305   $ 0      $ (11,221   $ 9,149      $ 2   

Industrials

    4,231        0        (152     5        0        (24     0        (335     3,725        6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     25,852      $     1,093      $     (2,208   $     17      $     5      $     (329   $     0      $     (11,556   $     12,874      $     8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 06/30/2016
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

          

Corporate Bonds & Notes

          

Banking & Finance

  $ 2,883         Proxy Pricing         Base Price         102.67   
    6,266         Reference Instrument         Spread movement         37.00-324.53 bps   

Industrials

    3,725         Proxy Pricing         Base Price         100.09   
 

 

 

          

Total

  $     12,874            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

 

64   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund

 

June 30, 2016

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 180.3%   
BANK LOAN OBLIGATIONS 3.6%   

Energy Future Intermediate Holding Co. LLC

  

4.250% due 12/19/2016

  $     41,072      $     41,059   

Fortescue Metals Group Ltd.

  

4.250% due 06/30/2019

      10,069          9,660   

iHeartCommunications, Inc.

  

7.210% due 01/30/2019

      24,775          18,210   

Maxim Crane Works LP

  

10.250% due 11/26/2018

      10,000          9,992   

OGX (13.000% PIK)

  

13.000% due 04/10/2049 (c)

      2,107          1,726   

Sequa Corp.

  

5.250% due 06/19/2017

      24,911          19,618   
       

 

 

 

Total Bank Loan Obligations (Cost $111,813)

      100,265   
       

 

 

 
CORPORATE BONDS & NOTES 45.0%   
BANKING & FINANCE 19.1%   

AGFC Capital Trust

  

6.000% due 01/15/2067 (j)

      20,300          9,541   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR     6,900          2,106   

4.000% due 01/21/2019 ^

      15,000          4,578   

Banco Popular Espanol S.A.

  

11.500% due 10/10/2018 (f)(j)

      10,300          11,361   

Barclays Bank PLC

  

14.000% due 06/15/2019 (f)(j)

  GBP     7,030          11,371   

Barclays PLC

  

6.500% due 09/15/2019 (f)(j)

  EUR     4,200          4,148   

7.875% due 09/15/2022 (f)(j)

  GBP     29,400          35,352   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

  $     90,783          90,783   

Cantor Fitzgerald LP

  

7.875% due 10/15/2019 (j)

      3,055          3,434   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (f)(j)

  GBP     18,800          22,559   

7.875% due 01/23/2024 (f)(j)

  $     4,200          4,032   

Exeter Finance Corp.

  

9.750% due 05/20/2019

      21,900          20,638   

Jefferies Finance LLC

  

7.500% due 04/15/2021 (j)

      14,461          13,033   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020 (j)

      3,000          2,640   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (h)

      39,206          36,484   

Legg Mason PT

  

7.130% due 01/10/2021

      11,782          12,430   

8.600% due 08/10/2021

      7,174          7,773   

Lloyds Banking Group PLC

  

7.625% due 06/27/2023 (f)(j)

  GBP     19,767          24,937   

7.875% due 06/27/2029 (f)(j)

      18,050          22,798   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     700          776   

Nationwide Building Society

  

10.250% due (f)

  GBP     62          10,295   

Navient Corp.

  

8.000% due 03/25/2020 (j)

  $     9,500          9,732   

Novo Banco S.A.

  

5.000% due 05/21/2019

  EUR     1,500          1,229   

OneMain Financial Holdings LLC

  

6.750% due 12/15/2019 (j)

  $     5,000          4,894   

Pinnacol Assurance

  

8.625% due 06/25/2034 (h)

      23,200          25,726   

Rio Oil Finance Trust

  

9.250% due 07/06/2024

      19,746          17,055   

9.750% due 01/06/2027

      3,000          2,565   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (f)(j)

      35,893          33,111   

8.000% due 08/10/2025 (f)(j)

      6,027          5,635   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Santander UK Group Holdings PLC

  

7.375% due 06/24/2022 (f)(j)

  GBP     20,300      $     25,234   

Sberbank of Russia Via SB Capital S.A.

  

6.125% due 02/07/2022

  $     1,900          2,105   

6.125% due 02/07/2022 (j)

      6,500          7,202   

Springleaf Finance Corp.

  

8.250% due 12/15/2020

      4,090          4,110   

Tesco Property Finance PLC

  

6.052% due 10/13/2039 (j)

  GBP     11,783          15,663   

TIG FinCo PLC

  

8.500% due 03/02/2020 (j)

      3,318          4,457   

8.750% due 04/02/2020 (j)

      18,718          18,440   

UBS Group AG

  

5.750% due 02/19/2022 (f)(j)

  EUR     3,600          4,035   

Vnesheconombank Via VEB Finance PLC

  

6.902% due 07/09/2020 (j)

  $     2,100          2,280   

6.902% due 07/09/2020

      700          760   
       

 

 

 
            535,302   
       

 

 

 
INDUSTRIALS 18.4%   

Altice Financing S.A.

  

7.500% due 05/15/2026 (j)

      11,300          11,131   

Altice Luxembourg S.A.

  

7.250% due 05/15/2022 (j)

  EUR     6,627          7,432   

Ancestry.com Holdings LLC (9.625% Cash or 10.375% PIK)

   

9.625% due 10/15/2018 (c)(j)

  $     11,483          11,670   

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

  

9.000% due 10/15/2019 (c)(j)

      28,642          24,346   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 (g)(j)

      71,967          66,569   

9.000% due 02/15/2020 (g)

      4,518          4,191   

11.250% due 06/01/2017 (g)

      5,000          4,638   

Chesapeake Energy Corp.

  

3.878% due 04/15/2019

      480          364   

Crimson Merger Sub, Inc.

  

6.625% due 05/15/2022 (j)

      7,905          6,581   

Diamond 1 Finance Corp.

  

5.450% due 06/15/2023 (j)

      664          690   

6.020% due 06/15/2026 (j)

      614          638   

DriveTime Automotive Group, Inc.

  

8.000% due 06/01/2021 (j)

      11,500          10,623   

Enterprise Inns PLC

  

6.875% due 02/15/2021 (j)

  GBP     2,360          3,298   

6.875% due 05/09/2025 (j)

      2,210          2,933   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019 (j)

  $     8,140          3,541   

Harvest Operations Corp.

  

2.330% due 04/14/2021

      20,638          20,734   

Hellenic Railways Organization S.A.

  

4.028% due 03/17/2017

  EUR     6,400          6,809   

5.014% due 12/27/2017

      800          840   

iHeartCommunications, Inc.

  

9.000% due 03/01/2021 (j)

  $     36,570          25,919   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021 (j)

      15,815          3,954   

8.125% due 06/01/2023

      1,289          325   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019 (j)

      40,120          35,506   

JC Penney Corp., Inc.

  

5.875% due 07/01/2023 (j)

      1,400          1,414   

Micron Technology, Inc.

  

7.500% due 09/15/2023 (j)

      7,800          8,358   

Millar Western Forest Products Ltd.

  

8.500% due 04/01/2021

      18,266          8,494   

Numericable SFR S.A.

  

6.000% due 05/15/2022 (j)

      1,900          1,855   

7.375% due 05/01/2026 (j)

      4,700          4,653   

OGX Austria GmbH

  

8.375% due 04/01/2022 ^

      6,000          0   

8.500% due 06/01/2018 ^

      48,450          0   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Perstorp Holding AB

  

8.750% due 05/15/2017 (j)

  $     46,270      $     46,282   

Petroleos de Venezuela S.A.

  

6.000% due 11/15/2026

      1,070          376   

Prime Security Services Borrower LLC

  

9.250% due 05/15/2023 (j)

      21,200          22,525   

Reynolds Group Issuer, Inc.

  

4.127% due 07/15/2021

      4,800          4,824   

7.000% due 07/15/2024

      3,400          3,507   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP     100          145   

Schaeffler Holding Finance BV (6.875% Cash or 7.625% PIK)

   

6.875% due 08/15/2018 (c)(j)

  $     2,250          2,300   

Sequa Corp.

  

7.000% due 12/15/2017

      24,447          6,478   

Soho House Bond Ltd.

  

9.125% due 10/01/2018 (j)

  GBP     15,350          20,128   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017 (j)

  $     60,430          59,524   

Tembec Industries, Inc.

  

9.000% due 12/15/2019 (j)

      14,600          11,388   

UCP, Inc.

  

8.500% due 10/21/2017

      23,300          23,455   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027 (j)

  GBP     6,001          7,977   

7.395% due 03/28/2024 (j)

      3,700          4,732   

Westmoreland Coal Co.

  

8.750% due 01/01/2022 (j)

  $     32,972          24,811   
       

 

 

 
          515,958   
       

 

 

 
UTILITIES 7.5%   

Frontier Communications Corp.

  

10.500% due 09/15/2022 (j)

      3,670          3,897   

11.000% due 09/15/2025 (j)

      3,670          3,826   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022 (j)

      5,400          5,346   

6.000% due 11/27/2023 (j)

      35,500          38,054   

Gazprom OAO Via Gaz Capital S.A.

  

5.999% due 01/23/2021 (j)

      2,525          2,733   

6.510% due 03/07/2022 (j)

      400          439   

7.288% due 08/16/2037 (j)

      900          1,049   

7.288% due 08/16/2037

      488          569   

8.625% due 04/28/2034 (j)

      2,725          3,453   

Illinois Power Generating Co.

  

6.300% due 04/01/2020 (j)

      34,047          13,448   

7.950% due 06/01/2032 (j)

      31,789          12,398   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022 (j)

      3,675          1,066   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      798          149   

6.750% due 10/01/2023

      24,495          4,776   

Petrobras Global Finance BV

  

3.250% due 04/01/2019

  EUR     200          208   

3.536% due 03/17/2020 (j)

  $     5,000          4,425   

5.375% due 10/01/2029 (j)

  GBP     2,320          2,231   

5.750% due 01/20/2020 (j)

  $     10,615          10,267   

6.250% due 12/14/2026 (j)

  GBP     6,398          6,846   

6.625% due 01/16/2034 (j)

      11,017          10,995   

7.875% due 03/15/2019 (j)

  $     27,521          28,484   

Sierra Hamilton LLC

  

12.250% due 12/15/2018 (j)

      30,000          23,400   

Sprint Capital Corp.

  

6.875% due 11/15/2028 (j)

      1,700          1,343   

Sprint Corp.

  

7.125% due 06/15/2024 (j)

      22,613          18,006   

7.875% due 09/15/2023 (j)

      8,746          7,193   

Yellowstone Energy LP

  

5.750% due 12/31/2026

      4,311          4,493   
       

 

 

 
          209,094   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $1,490,754)

      1,260,354   
       

 

 

 
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   65


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
MUNICIPAL BONDS & NOTES 0.8%   
IOWA 0.1%   

Iowa Tobacco Settlement Authority Revenue Bonds, Series 2005

   

6.500% due 06/01/2023

  $     1,390      $     1,418   
       

 

 

 
       
NEW JERSEY 0.2%   

New Jersey Economic Development Authority Revenue Bonds, Series 2005

   

6.500% due 09/01/2036

      6,715          6,944   
       

 

 

 
WEST VIRGINIA 0.5%   

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

   

7.467% due 06/01/2047

      14,350          13,681   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $20,333)

      22,043   
       

 

 

 
U.S. GOVERNMENT AGENCIES 0.8%   

Fannie Mae

  

3.000% due 01/25/2042 (a)(j)

      1,605          142   

3.500% due 08/25/2032 (a)(j)

      3,434          430   

5.547% due 08/25/2038 (a)(j)

      1,925          301   

5.697% due 02/25/2043 (a)(j)

      7,043          1,286   

6.187% due 12/25/2036 (a)(j)

      5,629          1,237   

8.042% due 10/25/2042 (j)

      2,795          3,199   

Freddie Mac

  

4.000% due 03/15/2027 (a)(j)

      1,713          212   

5.103% due 10/25/2028

      4,600          4,492   

5.758% due 09/15/2042 (a)(j)

      2,405          392   

6.058% due 12/15/2034 (a)

      2,921          288   

10.953% due 10/25/2028

      1,000          1,008   

11.203% due 03/25/2025

      7,307          7,315   

Ginnie Mae

  

3.500% due 06/20/2042 (a)(j)

      1,888          152   

4.000% due 09/20/2042 (a)(j)

      3,253          500   

5.672% due 08/20/2042 (a)(j)

      4,499          971   

5.802% due 12/20/2040 (a)(j)

      4,234          769   

6.258% due 08/16/2039 (a)(j)

      5,309          705   
       

 

 

 

Total U.S. Government Agencies
(Cost $22,964)

    23,399   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 43.0%   

Adjustable Rate Mortgage Trust

  

0.583% due 03/25/2036

      8,129          5,213   

0.603% due 03/25/2037

      2,770          2,081   

3.335% due 03/25/2037 (j)

      6,200          4,936   

4.954% due 11/25/2037 ^

      1,695          1,238   

American Home Mortgage Assets Trust

  

6.250% due 06/25/2037

      589          453   

American Home Mortgage Investment Trust

  

6.100% due 01/25/2037

      5,717          3,202   

ASG Resecuritization Trust

  

6.000% due 06/28/2037 (j)

      50,610          34,134   

Banc of America Alternative Loan Trust

  

6.000% due 07/25/2035 ^

      205          195   

6.000% due 04/25/2036

      2,221          1,678   

6.000% due 07/25/2046 ^

      2,475          2,156   

6.500% due 02/25/2036 ^

      4,426          3,984   

15.943% due 09/25/2035 ^

      611          752   

Banc of America Commercial Mortgage Trust

  

5.695% due 07/10/2046

      10,200          9,952   

Banc of America Funding Trust

  

0.663% due 04/25/2037 ^

      3,258          2,149   

2.696% due 09/20/2046

      3,976          3,287   

2.963% due 09/20/2047 ^

      840          622   

3.079% due 09/20/2037

      1,496          1,013   

3.114% due 04/20/2035 ^

      5,447          3,993   

4.579% due 08/26/2036

      6,385          4,660   

6.000% due 10/25/2037 ^

      6,552          4,817   

Banc of America Mortgage Trust

  

5.750% due 10/25/2036 ^

      2,901          2,404   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.750% due 05/25/2037 ^

  $     2,112      $     1,593   

6.000% due 10/25/2036 ^

      352          295   

Banc of America/Merrill Lynch Commercial Mortgage, Inc.

   

6.240% due 07/10/2042

      214          214   

Bayview Commercial Asset Trust

  

0.673% due 03/25/2037

      325          287   

0.683% due 12/25/2036

      520          451   

0.883% due 08/25/2034

      246          226   

BCAP LLC Trust

  

0.616% due 09/26/2035

      548          547   

0.626% due 05/26/2036

      6,428          3,445   

0.676% due 02/26/2037

      19,447            12,158   

0.946% due 05/26/2035

      7,621          3,859   

1.110% due 02/26/2047

      22,158          12,435   

2.988% due 03/26/2037

      3,976          3,181   

3.157% due 07/26/2036

      7,322          6,598   

3.231% due 07/26/2036

      1,692          1,372   

4.528% due 03/27/2037

      10,367          7,068   

5.500% due 12/26/2035

      15,031          12,469   

6.663% due 10/26/2037

      4,602          4,368   

7.822% due 06/26/2037

      8,079          7,824   

8.572% due 11/26/2035

      2,729          2,880   

9.669% due 07/26/2036

      846          872   

15.470% due 01/26/2036

      13,228          3,338   

Bear Stearns Adjustable Rate Mortgage Trust

  

2.870% due 02/25/2036 ^

      1,996          1,679   

Bear Stearns ALT-A Trust

  

0.793% due 08/25/2036 (j)

      46,879          37,841   

0.953% due 01/25/2036 ^(j)

      14,633          11,847   

2.638% due 04/25/2037 (j)

      9,803          7,396   

2.667% due 03/25/2036

      3,504          2,405   

2.852% due 08/25/2046 (j)

      6,997          5,302   

2.904% due 12/25/2046 ^

      8,679          6,197   

3.050% due 09/25/2035 ^

      9,779          7,402   

3.157% due 07/25/2036

      68,750          37,553   

Bear Stearns Mortgage Funding Trust

  

7.000% due 08/25/2036 (j)

      4,897          4,659   

Citigroup Mortgage Loan Trust, Inc.

  

2.486% due 08/25/2037

      6,239          4,504   

2.979% due 07/25/2036 ^

      4,838          3,080   

3.043% due 08/25/2034

      6,115          4,273   

3.116% due 03/25/2037 ^

      4,032          3,215   

5.176% due 04/25/2037 ^

      1,061          909   

5.500% due 12/25/2035

      4,929          3,743   

6.500% due 09/25/2036

      1,924          1,400   

Citigroup/Deutsche Bank Commercial Mortgage Trust

  

5.398% due 12/11/2049

      11,160          8,985   

Commercial Mortgage Trust

  

4.000% due 07/10/2046

      4,000          3,434   

Countrywide Alternative Loan Resecuritization Trust

  

2.893% due 03/25/2047

      6,065          5,668   

Countrywide Alternative Loan Trust

  

0.633% due 05/25/2036 (j)

      32,674          21,876   

0.638% due 03/20/2047

      1,131          789   

0.658% due 05/20/2046 ^(j)

      29,258          18,569   

0.663% due 08/25/2047 ^

      2,476          1,955   

0.683% due 03/25/2036 (j)

      31,513          21,731   

0.713% due 07/25/2036 (j)

      11,982          8,837   

0.748% due 11/20/2035

      306          228   

1.153% due 10/25/2035 ^(j)

      1,761          1,284   

1.747% due 07/20/2035 ^(j)

      20,011          14,581   

2.932% due 05/25/2036 (j)

      12,354          9,293   

5.500% due 11/25/2035

      3,518          2,547   

5.500% due 02/25/2036 ^

      2,456          2,036   

5.500% due 02/25/2036

      2,768          2,298   

5.500% due 05/25/2036 ^(j)

      2,898          2,448   

5.500% due 05/25/2037

      2,632          2,125   

6.000% due 03/25/2035 ^(j)

      680          554   

6.000% due 02/25/2036 (j)

      29,137          22,983   

6.000% due 04/25/2036

      1,022          785   

6.000% due 01/25/2037 ^

      2,094          1,860   

6.000% due 02/25/2037 ^

      1,814          1,210   

6.000% due 02/25/2037 (j)

      7,250          5,834   

6.000% due 04/25/2037 (j)

      13,222          10,674   

6.000% due 04/25/2037 ^

      8,834          6,033   

6.000% due 08/25/2037

      4,774          3,903   

6.000% due 08/25/2037 ^(j)

      17,101          13,980   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

6.250% due 12/25/2036 ^

  $     964      $     690   

18.553% due 07/25/2035

      197          268   

Countrywide Home Loan Mortgage Pass-Through Trust

  

2.323% due 03/25/2046 ^(j)

      53,767          26,436   

2.632% due 03/20/2036 (j)

      1,213          1,212   

2.913% due 05/20/2036 ^

      4,592          3,544   

6.000% due 01/25/2038 ^

      6,495          5,410   

Credit Suisse Commercial Mortgage Trust

  

5.849% due 02/15/2039

      3,410          3,103   

Credit Suisse First Boston Mortgage Securities Corp.

  

4.952% due 07/15/2037

      4,620          4,156   

6.000% due 01/25/2036

      496          375   

Credit Suisse Mortgage Capital Certificates

  

2.356% due 12/29/2037

      5,391          3,159   

2.484% due 10/26/2036 (j)

      22,474          16,605   

2.846% due 09/26/2047

      26,779          13,878   

3.035% due 05/26/2036

      9,580          5,686   

3.090% due 04/28/2037

      7,256          5,304   

5.750% due 05/26/2037 (j)

      32,140          29,416   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

6.000% due 07/25/2036

      3,704          2,765   

6.500% due 05/25/2036 ^

      4,259          3,130   

6.750% due 08/25/2036 ^(j)

      4,269          3,359   

DBUBS Mortgage Trust

  

4.652% due 11/10/2046

      19,203          12,968   

Debussy PLC

  

5.930% due 07/12/2025 (j)

  GBP     55,000            73,036   

8.250% due 07/12/2025

      10,000          11,129   

Deco Pan Europe Ltd.

  

0.550% due 04/27/2018

  EUR     1,827          1,995   

Deutsche ALT-A Securities, Inc.

  

0.753% due 04/25/2037

  $     11,548          5,905   

5.500% due 12/25/2035 ^

      1,124          934   

Epic Drummond Ltd.

  

0.044% due 01/25/2022 (j)

  EUR     77,108          76,564   

First Horizon Alternative Mortgage Securities Trust

  

0.000% due 02/25/2020 (b)(e)

  $     28          25   

0.000% due 05/25/2020 (b)(e)

      32          28   

0.000% due 06/25/2020 ^(b)(e)

      16          15   

0.000% due 03/25/2035 (b)(e)

      180          137   

First Horizon Mortgage Pass-Through Trust

  

3.058% due 05/25/2037 ^

      10,765          8,579   

Fondo de Titulizacion de Activos UCI

  

1.000% due 06/16/2049

  EUR     4,227          3,554   

GC Pastor Hipotecario FTA

  

0.000% due 06/21/2046

      6,789          5,500   

Greenwich Capital Commercial Funding Corp. Trust

  

6.255% due 06/10/2036

  $     2,850          2,908   

Grifonas Finance PLC

  

0.152% due 08/28/2039

  EUR     7,370          5,888   

GS Mortgage Securities Trust

  

5.829% due 04/10/2038

  $     3,617          3,562   

GSC Capital Corp. Mortgage Trust

  

0.633% due 05/25/2036 ^

      4,778          3,704   

HarborView Mortgage Loan Trust

  

2.528% due 06/19/2045 ^

      1,544          943   

HomeBanc Mortgage Trust

  

2.719% due 04/25/2037 ^(j)

      7,606          4,844   

HSI Asset Loan Obligation Trust

  

6.000% due 06/25/2037 ^

      10,844          9,098   

IM Pastor Fondo de Titluzacion Hipotecaria

  

1.000% due 03/22/2043 (j)

  EUR     35,003          29,211   

Impac Secured Assets Trust

  

0.623% due 01/25/2037 (j)

  $     11,013          9,591   

IndyMac Mortgage Loan Trust

  

0.633% due 02/25/2037

      2,449          1,717   

0.663% due 11/25/2036

      391          330   

2.927% due 11/25/2035 ^

      6,704          5,548   

3.364% due 06/25/2036

      1,738          1,421   

Infinity SoPRANo

  

0.018% due 11/05/2019 (j)

  EUR     8,329          8,914   

Jefferies Resecuritization Trust

  

6.000% due 12/26/2036

  $     4,244          1,826   
 

 

66   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

JPMorgan Alternative Loan Trust

  

0.950% due 06/27/2037 (j)

  $     20,894      $     15,873   

2.939% due 05/25/2036 ^

      1,433          1,102   

3.245% due 11/25/2036 ^

      1,818          1,647   

6.000% due 12/25/2035 ^(j)

      1,672          1,524   

JPMorgan Chase Commercial Mortgage Securities Trust

  

5.010% due 07/15/2042

      3,195          3,069   

6.079% due 06/12/2041 (j)

      10,975          11,038   

JPMorgan Resecuritization Trust

  

2.756% due 03/21/2037

      8,432          7,122   

6.000% due 09/26/2036

      3,492          2,561   

6.157% due 04/26/2036

      7,340          4,447   

Lavender Trust

  

6.250% due 10/26/2036

      5,520          4,287   

LB-UBS Commercial Mortgage Trust

  

5.518% due 02/15/2040

      6,683          6,785   

5.991% due 06/15/2038

      3,079          2,797   

Lehman Mortgage Trust

  

6.000% due 01/25/2038 ^

      5,859          5,804   

Lehman XS Trust

  

1.353% due 08/25/2047

      861          574   

MASTR Alternative Loan Trust

  

1.153% due 02/25/2036

      2,576          1,622   

Merrill Lynch Alternative Note Asset Trust

  

6.000% due 05/25/2037 ^

      4,903          4,180   

Merrill Lynch Mortgage Investors Trust

  

2.821% due 03/25/2036 ^(j)

      15,283            10,106   

Mesdag Delta BV

  

0.094% due 01/25/2020

  EUR     16,167          15,380   

Morgan Stanley Mortgage Loan Trust

  

0.623% due 05/25/2036

  $     222          101   

2.995% due 05/25/2036 ^

      3,660          2,620   

3.218% due 11/25/2037

      3,518          2,758   

5.962% due 06/25/2036

      2,512          1,214   

Morgan Stanley Re-REMIC Trust

  

0.852% due 02/26/2037

      7,452          5,090   

0.871% due 03/26/2037

      4,627          3,183   

Morgan Stanley Resecuritization Trust

  

2.997% due 06/26/2035

      11,086          5,293   

PHH Alternative Mortgage Trust

  

0.000% due 02/25/2037 ^(b)(e)

      12          9   

RBSSP Resecuritization Trust

  

3.075% due 09/26/2035

      7,939          5,338   

5.500% due 05/26/2036

      5,104          4,518   

8.983% due 06/26/2037

      857          582   

Residential Accredit Loans, Inc. Trust

  

0.603% due 02/25/2037

      1,032          843   

6.000% due 12/25/2035 ^(j)

      4,386          3,778   

6.000% due 11/25/2036 ^

      5,208          4,190   

6.250% due 02/25/2037 ^(j)

      6,854          5,516   

6.500% due 09/25/2037 ^

      2,472          2,131   

Residential Asset Mortgage Products Trust

  

8.000% due 05/25/2032

      1,230          1,066   

Residential Asset Securitization Trust

  

6.000% due 05/25/2036

      1,663          1,517   

6.000% due 02/25/2037 ^

      314          247   

6.000% due 03/25/2037 ^

      4,039          2,738   

6.250% due 10/25/2036 ^

      193          161   

Residential Funding Mortgage Securities, Inc. Trust

  

6.000% due 10/25/2036 ^

      1,549          1,378   

Sequoia Mortgage Trust

  

1.449% due 02/20/2034

      868          818   

2.289% due 09/20/2032

      915          872   

5.288% due 06/20/2037 ^(j)

      19,370          17,589   

Structured Adjustable Rate Mortgage Loan Trust

  

3.039% due 04/25/2036 ^

      1,214          1,112   

Structured Asset Mortgage Investments Trust

  

0.663% due 05/25/2036

      48          37   

Structured Asset Securities Corp. Trust

  

5.500% due 10/25/2035 ^

      3,703          2,859   

Suntrust Adjustable Rate Mortgage Loan Trust

  

6.020% due 02/25/2037 ^

      9,373          7,952   

Talisman-5 Finance PLC

  

0.046% due 10/22/2016

  EUR     977          1,073   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Theatre Hospitals PLC

  

3.588% due 10/15/2031 (j)

  GBP     40,319      $     51,285   

4.338% due 10/15/2031

      1,905          2,347   

WaMu Mortgage Pass-Through Certificates Trust

  

2.190% due 07/25/2046

  $     439          392   

2.352% due 08/25/2036 ^

      3,606          3,308   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

0.693% due 01/25/2047 ^

      3,145          2,359   

1.407% due 06/25/2046

      11,931          6,577   

5.750% due 11/25/2035 ^

      2,543          2,244   

5.967% due 05/25/2036 ^(j)

      10,523          7,565   

Wells Fargo Mortgage Loan Trust

  

2.903% due 03/27/2037

      8,193          5,812   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $1,251,584)

      1,205,064   
       

 

 

 
ASSET-BACKED SECURITIES 76.8%   

Aames Mortgage Investment Trust

  

1.443% due 07/25/2035 (j)

      19,113          15,618   

Accredited Mortgage Loan Trust

  

0.713% due 09/25/2036

      2,200          1,895   

1.053% due 07/25/2035

      5,453          4,448   

ACE Securities Corp. Home Equity Loan Trust

  

0.563% due 12/25/2036

      27,776          11,035   

0.753% due 02/25/2036

      5,455          4,924   

1.073% due 02/25/2036 ^

      7,687          6,460   

1.428% due 07/25/2035

      2,900          2,464   

1.548% due 07/25/2035 ^

      17,938          8,552   

1.953% due 11/25/2034

      1,413          1,180   

Aegis Asset-Backed Securities Trust

  

0.883% due 12/25/2035 (j)

      22,800          16,131   

0.933% due 06/25/2035 (j)

      12,094          8,855   

Ameriquest Mortgage Securities Trust

  

0.793% due 04/25/2036 (j)

      30,500          25,647   

0.843% due 03/25/2036 (j)

      20,042          17,782   

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

   

0.903% due 01/25/2036 (j)

      22,225          17,647   

1.063% due 09/25/2035 (j)

      13,750          9,461   

1.503% due 04/25/2035 (j)

      21,004          17,633   

1.518% due 11/25/2034

      5,526          4,552   

2.403% due 09/25/2032

      1,148          933   

4.731% due 05/25/2034 ^

      2,745          2,340   

Amortizing Residential Collateral Trust

  

1.578% due 08/25/2032

      829          760   

Argent Securities Trust

  

0.553% due 06/25/2036

      862          302   

0.573% due 04/25/2036

      1,331          500   

0.603% due 06/25/2036

      4,728          1,665   

0.603% due 09/25/2036

      10,114          3,827   

0.643% due 03/25/2036

      14,373          7,256   

Argent Securities, Inc. Asset-Backed Pass-
Through Certificates

   

0.683% due 01/25/2036

      3,933          2,901   

0.773% due 01/25/2036 (j)

      20,288          15,178   

0.833% due 02/25/2036 (j)

      41,082          28,355   

1.728% due 11/25/2034

      9,031          6,747   

Asset-Backed Funding Certificates Trust

  

1.003% due 07/25/2035

      7,400          5,909   

1.503% due 03/25/2034

      1,524          1,208   

Asset-Backed Securities Corp. Home Equity Loan Trust

  

3.442% due 08/15/2033

      863          788   

Bear Stearns Asset-Backed Securities Trust

  

1.653% due 07/25/2035 (j)

      39,756          31,254   

1.953% due 10/27/2032

      638          585   

2.328% due 12/25/2034 (j)

      18,650          14,112   

3.127% due 10/25/2036

      855          747   

6.000% due 12/25/2035 ^

      898          781   

Carrington Mortgage Loan Trust

  

0.533% due 10/25/2036

      1,310          753   

0.713% due 02/25/2037

      8,300          5,929   

0.873% due 02/25/2037

      13,201          8,612   

1.503% due 05/25/2035

      4,400          3,339   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Centex Home Equity Loan Trust

  

0.933% due 10/25/2035

  $     9,213      $     8,254   

CIFC Funding Ltd.

  

0.010% due 05/24/2026

      3,390          2,154   

Citigroup Mortgage Loan Trust, Inc.

  

0.593% due 01/25/2037 (j)

      40,059          31,079   

0.603% due 12/25/2036 (j)

      30,383          16,775   

0.613% due 09/25/2036 (j)

      27,038          19,926   

0.653% due 05/25/2037

      1,039          745   

0.673% due 12/25/2036

      6,119          3,419   

0.853% due 03/25/2037 (j)

      40,086          32,036   

0.863% due 10/25/2035 (j)

      8,200          7,638   

6.351% due 05/25/2036 ^

      3,768          2,337   

Countrywide Asset-Backed Certificates

  

0.583% due 12/25/2036 ^(j)

      42,571          38,546   

0.593% due 06/25/2035 (j)

      81,091          58,772   

0.593% due 01/25/2037 (j)

      28,728          19,433   

0.593% due 06/25/2037 (j)

      29,231          20,948   

0.593% due 07/25/2037 ^(j)

      15,824          13,173   

0.593% due 06/25/2047 ^(j)

      57,618          41,485   

0.603% due 04/25/2047

      2,679          2,194   

0.603% due 06/25/2047 ^(j)

      26,071          22,486   

0.613% due 05/25/2036 (j)

      14,281          9,676   

0.613% due 03/25/2037 (j)

      11,749          10,736   

0.623% due 03/25/2037 (j)

      8,621          7,119   

0.623% due 05/25/2037 (j)

      2,835          2,613   

0.653% due 06/25/2037 ^(j)

      25,405          17,288   

0.653% due 09/25/2047 (j)

      29,402          18,629   

0.673% due 05/25/2037 (j)

      25,000          17,278   

0.673% due 08/25/2037

      26,000          15,498   

0.673% due 05/25/2047

      17,951          12,304   

0.673% due 06/25/2047 ^

      19,000          10,430   

0.683% due 04/25/2047

      35,000          16,581   

0.683% due 10/25/2047 (j)

      34,559          29,822   

0.693% due 03/25/2036 (j)

      50,328          34,433   

0.693% due 04/25/2036

      1,040          630   

0.733% due 01/25/2045

      7,700          6,398   

0.743% due 10/25/2047 (j)

      59,229            35,981   

0.893% due 04/25/2036 (j)

      10,000          8,400   

0.903% due 03/25/2047 ^

      2,755          1,377   

1.203% due 03/25/2034

      902          869   

1.653% due 06/25/2033

      1,990          1,726   

1.953% due 02/25/2035

      4,300          3,861   

5.000% due 10/25/2046 ^

      990          842   

5.329% due 10/25/2032 ^(j)

      24,189          20,144   

Countrywide Asset-Backed Certificates Trust

  

0.603% due 03/25/2047 (j)

      17,232          14,865   

0.613% due 03/25/2037 (j)

      14,934          13,571   

0.913% due 05/25/2036

      7,400          6,511   

0.973% due 05/25/2036

      24,889          13,224   

1.083% due 08/25/2035

      7,400          6,825   

1.093% due 10/25/2035 (j)

      7,200          6,591   

1.103% due 07/25/2035 (j)

      4,500          4,158   

1.183% due 07/25/2035 (j)

      6,900          5,963   

1.253% due 08/25/2047 (j)

      29,527          25,191   

1.353% due 04/25/2035 (j)

      10,753          9,510   

1.796% due 04/25/2035

      3,400          2,945   

2.178% due 11/25/2034 (j)

      13,611          11,162   

Credit-Based Asset Servicing and Securitization LLC

  

1.083% due 07/25/2035

      3,000          2,091   

Encore Credit Receivables Trust

  

1.143% due 07/25/2035

      452          370   

FAB U.S. Ltd.

  

0.010% due 12/06/2045

  GBP     9,446          5,889   

Fieldstone Mortgage Investment Trust

  

0.623% due 07/25/2036

  $     7,609          4,391   

First Franklin Mortgage Loan Trust

  

0.693% due 04/25/2036

      6,825          4,364   

0.833% due 02/25/2036

      5,500          2,973   

0.903% due 11/25/2036 (j)

      27,273          23,989   

1.428% due 05/25/2036

      17,184          6,878   

Fremont Home Loan Trust

  

0.603% due 01/25/2037

      4,268          2,160   

0.693% due 02/25/2037

      1,779          962   

0.943% due 07/25/2035

      2,800          2,495   

Gramercy Real Estate CDO Ltd.

  

1.198% due 07/25/2041

      1,150          1,068   
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   67


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

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

GSAA Trust

  

5.058% due 05/25/2035

 

$

    5,158      $     4,827   

GSAMP Trust

       

0.513% due 01/25/2037

      4,607          2,748   

0.543% due 01/25/2037

      1,375          823   

0.613% due 05/25/2046

      1,089          984   

0.653% due 11/25/2036

      5,534          3,148   

0.703% due 12/25/2036

      5,786          3,196   

0.723% due 04/25/2036 (j)

      26,000            15,568   

2.103% due 10/25/2034

      806          753   

3.003% due 10/25/2033

      809          764   

Hillcrest CDO Ltd.

  

0.998% due 12/10/2039

      38,658          18,846   

Home Equity Asset Trust

  

1.548% due 05/25/2035

      3,800          3,351   

1.653% due 07/25/2035

      4,000          3,179   

Home Equity Loan Trust

  

0.793% due 04/25/2037

      8,000          4,536   

HSI Asset Securitization Corp. Trust

  

0.563% due 12/25/2036

      29,047          11,781   

0.613% due 10/25/2036

      11,276          5,948   

0.623% due 12/25/2036

      17,791          7,270   

0.643% due 01/25/2037 (j)

      49,500          29,707   

0.843% due 11/25/2035 (j)

      5,830          4,214   

IndyMac Home Equity Mortgage Loan Asset-
Backed Trust

   

0.613% due 11/25/2036

      7,520          5,008   

0.693% due 04/25/2037

      4,735          3,026   

0.893% due 03/25/2036

      1,504          973   

IXIS Real Estate Capital Trust

  

1.083% due 02/25/2036 (j)

      11,040          9,848   

1.428% due 09/25/2035 ^

      5,457          3,413   

JPMorgan Mortgage Acquisition Corp.

  

0.843% due 05/25/2035 (j)

      5,000          3,718   

JPMorgan Mortgage Acquisition Trust

  

0.593% due 03/25/2047 (j)

      9,514          8,859   

0.603% due 07/25/2036

      2,415          1,228   

0.613% due 07/25/2036 ^

      1,588          639   

0.693% due 08/25/2036

      2,947          2,420   

0.703% due 07/25/2036 (j)

      18,262          15,593   

5.462% due 10/25/2036 ^

      5,091          3,851   

5.888% due 10/25/2036 ^(j)

      16,970          12,834   

Lehman XS Trust

  

5.144% due 05/25/2037 ^(j)

      17,223          12,765   

Long Beach Mortgage Loan Trust

  

0.883% due 11/25/2035 (j)

      28,200          24,142   

1.103% due 09/25/2034 (j)

      1,216          1,018   

1.428% due 04/25/2035 (j)

      32,000          27,337   

MASTR Asset-Backed Securities Trust

  

0.623% due 06/25/2036

      6,890          5,339   

0.623% due 10/25/2036

      4,280          3,968   

0.633% due 02/25/2036

      10,268          5,360   

0.693% due 06/25/2036

      4,356          2,358   

0.743% due 12/25/2035 (j)

      8,173          7,269   

0.813% due 12/25/2035

      11,886          4,747   

Morgan Stanley ABS Capital, Inc. Trust

  

0.513% due 09/25/2036

      4,447          2,054   

0.523% due 10/25/2036

      5          3   

0.593% due 10/25/2036

      11,542          6,292   

0.603% due 06/25/2036 (j)

      13,424          9,791   

0.603% due 09/25/2036

      8,934          4,231   

0.603% due 11/25/2036 (j)

      22,803          13,413   

0.673% due 10/25/2036

      5,562          3,074   

0.723% due 03/25/2036 (j)

      30,000          24,587   

1.098% due 09/25/2035

      6,500          5,887   

1.128% due 09/25/2035 (j)

      18,121          13,234   

1.453% due 07/25/2037 (j)

      32,670          28,194   

2.403% due 05/25/2034

      2,754          2,438   

Morgan Stanley Capital, Inc. Trust

  

0.743% due 01/25/2036 (j)

      23,557          21,198   

New Century Home Equity Loan Trust

  

3.453% due 01/25/2033 ^

      729          645   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Nomura Home Equity Loan, Inc. Home Equity Loan Trust

   

0.783% due 10/25/2036 ^

 

$

    5,572      $     1,953   

Option One Mortgage Loan Trust

  

0.583% due 07/25/2037 (j)

      20,651          12,733   

0.593% due 01/25/2037 (j)

      13,459          7,928   

0.673% due 01/25/2037

      2,745          1,640   

0.703% due 03/25/2037

      817          419   

0.783% due 04/25/2037

      3,318          2,013   

Option One Mortgage Loan Trust Asset-
Backed Certificates

   

0.913% due 11/25/2035 (j)

      13,200            10,024   

Park Place Securities, Inc.

  

1.083% due 09/25/2035

      9,600          5,857   

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

   

0.943% due 08/25/2035 (j)

      8,350          6,758   

0.943% due 09/25/2035 (j)

      10,713          8,678   

1.003% due 07/25/2035 (j)

      30,950          23,891   

1.488% due 03/25/2035 ^

      7,500          5,650   

1.578% due 10/25/2034 (j)

      10,000          8,401   

1.698% due 01/25/2036 (j)

      4,427          4,073   

1.773% due 01/25/2036 ^

      11,978          8,896   

2.178% due 02/25/2035 (j)

      29,447          20,892   

2.253% due 12/25/2034 (j)

      9,329          7,897   

2.478% due 12/25/2034

      9,857          5,722   

Popular ABS Mortgage Pass-Through Trust

  

0.843% due 02/25/2036

      7,000          5,917   

1.143% due 06/25/2035

      626          501   

1.603% due 06/25/2035

      683          504   

Renaissance Home Equity Loan Trust

  

5.612% due 04/25/2037

      3,260          1,603   

Residential Asset Mortgage Products Trust

  

0.773% due 01/25/2036 (j)

      14,303          11,221   

0.833% due 01/25/2036

      4,360          3,353   

0.933% due 09/25/2035

      6,494          5,930   

1.173% due 02/25/2035

      250          227   

1.196% due 04/25/2034

      5,237          4,611   

1.316% due 04/25/2034

      5,844          5,109   

2.021% due 04/25/2034 ^

      1,605          1,120   

2.426% due 04/25/2034 ^

      2,063          1,471   

Residential Asset Securities Corp. Trust

  

0.583% due 11/25/2036 (j)

      14,953          12,316   

0.683% due 06/25/2036 (j)

      41,332          31,717   

0.693% due 09/25/2036 (j)

      16,782          15,083   

0.713% due 07/25/2036 (j)

      17,800          14,253   

0.733% due 04/25/2036

      5,270          4,536   

0.783% due 04/25/2036 (j)

      17,500          14,127   

0.793% due 05/25/2037 (j)

      9,275          6,770   

0.863% due 01/25/2036

      3,200          2,883   

1.578% due 02/25/2035

      1,900          1,582   

Saxon Asset Securities Trust

  

2.203% due 12/25/2037 (j)

      55,477          50,518   

Securitized Asset-Backed Receivables LLC Trust

  

0.593% due 07/25/2036 (j)

      29,529          22,733   

0.613% due 07/25/2036

      3,295          1,578   

0.703% due 05/25/2036 (j)

      21,540          12,471   

0.723% due 03/25/2036 (j)

      10,577          8,467   

0.903% due 10/25/2035 (j)

      13,000          10,035   

1.113% due 08/25/2035

      5,900          3,894   

SLM Student Loan Trust

  

0.010% due 10/28/2029

      25          29,864   

Soundview Home Loan Trust

  

0.603% due 06/25/2037

      4,215          2,674   

0.613% due 11/25/2036 (j)

      13,958          11,938   

0.633% due 02/25/2037

      9,016          3,615   

0.713% due 02/25/2037

      4,136          1,692   

0.733% due 05/25/2036 (j)

      14,465          11,681   

0.803% due 03/25/2036

      7,933          6,440   

1.403% due 10/25/2037

      9,270          6,612   

1.553% due 09/25/2037

      2,642          1,852   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Specialty Underwriting & Residential Finance Trust

  

0.796% due 03/25/2037

  $     731      $     381   

1.428% due 12/25/2035

      5,637          5,048   

2.253% due 05/25/2035

      2,646          2,428   

3.913% due 02/25/2037 ^

      3,881          2,041   

Taberna Preferred Funding Ltd.

  

0.983% due 02/05/2037

      52,245          45,453   

1.013% due 08/05/2036 ^

      22,509          15,756   

1.013% due 08/05/2036

      5,596          3,917   

Trapeza CDO LLC

  

1.703% due 01/20/2034 (j)

      28,407          23,578   

Trapeza CDO Ltd.

  

1.690% due 07/15/2034 (j)

      35,000          27,300   

Wachovia Mortgage Loan Trust

  

1.143% due 10/25/2035

      8,000          5,620   

Wells Fargo Home Equity Asset-Backed Securities Trust

  

0.783% due 05/25/2036

      5,000          4,059   
       

 

 

 

Total Asset-Backed Securities
(Cost $2,193,644)

      2,153,547   
       

 

 

 
SOVEREIGN ISSUES 0.3%   

Athens Urban Transportation Organisation

  

4.851% due 09/19/2016

  EUR     1,425          1,571   

Republic of Greece Government International Bond

  

3.800% due 08/08/2017

  JPY     347,000          3,180   

4.500% due 07/03/2017

      310,000          2,841   

4.750% due 04/17/2019

  EUR     1,900          1,912   
       

 

 

 

Total Sovereign Issues (Cost $9,544)

    9,504   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
ENERGY 0.0%   

OGX Petroleo e Gas S.A. SP - ADR

      858,034          0   
       

 

 

 
FINANCIALS 0.1%   

TIG FinCo PLC (h)

      2,651,536          1,694   
       

 

 

 

Total Common Stocks (Cost $3,931)

    1,694   
       

 

 

 
SHORT-TERM INSTRUMENTS 9.9%   
REPURCHASE AGREEMENTS (i) 8.6%  
          242,219   
       

 

 

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

0.160% due 07/21/2016 - 12/08/2016 (d)(e)(l)(n)

  $     37,380          37,375   
       

 

 

 
Total Short-Term Instruments
(Cost $279,594)
          279,594   
       

 

 

 
       

Total Investments in Securities

(Cost $5,384,161)

  

  

      5,055,464   
       

Total Investments 180.3%

(Cost $5,384,161)

  

  

  $     5,055,464   

Financial Derivative
Instruments (k)(m) 0.3%

(Cost or Premiums, net $(6,270))

    8,539   
Other Assets and Liabilities, net (80.6)%     (2,260,000
       

 

 

 
Net Assets 100.0%     $       2,804,003   
       

 

 

 
 

 

68   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Principal only security.
(c) Payment in-kind security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon security.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.
(g) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(h)  RESTRICTED SECURITIES:

 

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

KGH Intermediate Holdco LLC 8.500% due 08/08/2019

    08/07/2014        $    38,680      $     36,484        1.30

Pinnacol Assurance 8.625% due 06/25/2034

    06/23/2014        23,200        25,726        0.92   

TIG FinCo PLC

    04/02/2015        3,931        1,694        0.06   
   

 

 

   

 

 

   

 

 

 
      $    65,811      $ 63,904        2.28
   

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(i)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 
BSN     0.670     06/30/2016        07/01/2016      $ 96,000      U.S. Treasury Notes 1.375% due 10/31/2020   $ (98,185   $ 96,000      $ 96,002   
NOM     0.950        06/30/2016        07/01/2016        9,200      U.S. Treasury Notes 1.625% due 05/31/2023     (9,392     9,200        9,200   
RDR     0.800        06/30/2016        07/01/2016            130,800      U.S. Treasury Notes 2.500% due 08/15/2023     (133,698     130,800        130,803   
SSB     0.010        06/30/2016        07/01/2016        6,219      U.S. Treasury Notes 2.375% due 12/31/2020     (6,343     6,219        6,219   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

      $     (247,618   $     242,219      $     242,224   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.900     11/24/2015        TBD  (2)      $        (25,272   $     (25,411
    0.900        12/02/2015        TBD  (2)        (12,960     (13,029
    1.450        06/03/2016        09/06/2016          (983     (984
    1.750        05/16/2016        08/16/2016          (5,763     (5,776
    1.750        06/02/2016        09/02/2016          (3,986     (3,992
    2.125        04/01/2016        07/01/2016          (6,342     (6,376
    2.129        04/04/2016        07/05/2016          (26,647     (26,786
    2.134        04/27/2016        07/27/2016          (20,616     (20,695
    2.135        04/21/2016        07/21/2016          (51,976     (52,195
    2.137        05/04/2016        08/04/2016          (40,483     (40,622
    2.146        07/01/2016        10/03/2016          (6,247     (6,247
    2.154        07/05/2016        10/05/2016              (11,760     (11,760
    2.157        06/09/2016        09/09/2016          (6,178     (6,186
    2.161        06/08/2016        09/08/2016          (9,282     (9,295
    2.476        05/14/2015        11/14/2016          (20,027     (20,092
    2.483        10/16/2015        10/17/2016          (20,519     (20,627
    2.490        03/23/2015        09/26/2016          (2,600     (2,601
    2.490        03/25/2015        09/26/2016          (13,291     (13,297
    2.497        09/22/2015        09/22/2016          (4,838     (4,841

BPG

    1.390        04/11/2016        07/11/2016          (1,443     (1,448
    2.349        08/20/2015        08/19/2016          (19,883     (20,293
    2.349        08/21/2015        08/19/2016          (12,363     (12,617
    2.434        11/12/2015        11/14/2016          (19,906     (20,218

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   69


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 
    2.466     11/30/2015        11/30/2016        $        (9,013   $ (9,145
    2.545        12/10/2015        12/09/2016          (4,479     (4,544
    2.552        12/11/2015        12/09/2016          (13,588     (13,784
    2.647        01/11/2016        01/11/2017          (30,316     (30,699
    2.653        01/27/2016        01/27/2017          (9,054     (9,158
    2.666        02/17/2016        02/17/2017          (9,712     (9,809
    2.731        03/16/2016        03/16/2017          (36,818     (37,117
    2.745        03/17/2016        03/16/2017          (9,049     (9,122

BPS

    0.300        06/20/2016        09/20/2016        EUR        (3,269     (3,629
    0.450        05/27/2016        07/27/2016          (6,077     (6,747
    0.550        06/30/2016        07/29/2016          (8,867     (9,841
    0.900        06/13/2016        07/13/2016        GBP        (2,278     (3,034
    0.950        06/03/2016        07/05/2016          (5,941     (7,915
    0.950        06/13/2016        07/13/2016          (9,129     (12,158
    0.950        06/20/2016        07/20/2016          (4,863     (6,476
    1.050        05/03/2016        07/13/2016          (9,438     (12,587
    1.150        05/31/2016        07/29/2016          (1,453     (1,937
    1.288        04/26/2016        07/26/2016        $        (4,214     (4,224
    1.450        05/03/2016        07/27/2016          (4,264     (4,274
    1.480        05/19/2016        08/16/2016          (7,520     (7,533
    2.127        06/17/2016        08/16/2016          (22,568     (22,587

BRC

    1.250        06/03/2016        09/06/2016          (3,384     (3,387
    1.450        06/06/2016        09/02/2016          (778     (779
    1.650        05/16/2016        08/16/2016          (1,754     (1,758
    1.650        06/03/2016        09/06/2016          (17,036     (17,058
    1.650        06/06/2016        09/02/2016          (2,594     (2,597
    1.850        06/03/2016        09/06/2016          (3,465     (3,470

DBL

    0.900        04/05/2016        07/05/2016        EUR        (26,153     (29,087
    0.900        07/05/2016        10/05/2016          (26,153     (29,022

DEU

    1.400        04/13/2016        07/13/2016        $        (1,830     (1,836
    1.400        04/21/2016        07/21/2016          (6,630     (6,648
    1.400        05/09/2016        08/09/2016          (31,946     (32,012
    1.500        06/06/2016        09/02/2016          (9,965     (9,975
    1.500        06/09/2016        09/09/2016          (12,856     (12,868
    1.500        06/21/2016        09/21/2016          (4,521     (4,523

GLM

    0.770        04/11/2016        07/11/2016        EUR        (17,274     (19,204
    1.939        04/08/2016        07/08/2016        $        (8,163     (8,200

GSC

    1.896        06/09/2016        07/08/2016          (46,961     (47,015
    1.947        06/13/2016        07/13/2016          (36,320     (36,355
    2.096        06/09/2016        07/08/2016          (16,859     (16,881

JML

    1.250        06/14/2016        07/07/2016          (23,023     (23,037

JPS

    2.405        05/04/2016        07/13/2016          (33,902     (34,033

MSB

    2.384        04/27/2016        04/27/2017          (21,887     (21,981
    2.388        04/22/2016        04/21/2017          (29,502     (29,639
    2.388        04/29/2016        05/01/2017          (24,204     (24,305
    2.396        03/30/2016        10/03/2016          (2,819     (2,836
    2.423        06/02/2016        04/21/2017          (2,988     (2,994
    2.432        06/06/2016        06/06/2017          (7,146     (7,158

MSC

    2.779        06/17/2016        07/11/2016              (19,573         (19,594

MYI

    1.500        05/09/2016        08/09/2016        GBP        (2,778     (3,707

NOM

    2.128        04/14/2016        10/14/2016        $        (14,076     (14,141
    2.133        04/15/2016        10/14/2016          (6,440     (6,469
    2.187        02/03/2016        08/03/2016          (31,851     (31,965

RBC

    1.470        06/03/2016        07/27/2016          (3,164     (3,168
    1.520        02/01/2016        08/01/2016          (18,329     (18,446
    1.520        02/04/2016        08/04/2016          (4,008     (4,033
    1.550        04/04/2016        10/04/2016          (5,582     (5,603
    2.336        04/25/2016        04/24/2017          (29,781     (29,910

RCE

    1.170        05/31/2016        07/29/2016        GBP        (3,403     (4,536
    1.250        05/31/2016        08/31/2016          (5,958     (7,941
    1.438        04/18/2016        07/18/2016          (3,793     (5,065
    1.481        06/14/2016        09/14/2016          (2,917     (3,886

RDR

    1.250        05/06/2016        07/14/2016        $        (3,258     (3,264
    1.500        01/14/2016        07/14/2016          (1,137     (1,145
    1.500        06/06/2016        09/07/2016          (2,448     (2,451
    1.500        06/08/2016        09/07/2016          (770     (771

RTA

    1.225        04/01/2016        07/01/2016          (7,962     (7,987
    1.377        01/04/2016        07/05/2016          (8,051     (8,106
    1.465        02/04/2016        08/04/2016          (7,015     (7,057
    1.466        02/03/2016        08/03/2016          (8,855     (8,909

 

70   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 
    1.467     02/22/2016        08/22/2016        $        (10,100   $ (10,154
    1.504        05/06/2016        11/07/2016          (1,591     (1,595
    1.506        05/19/2016        11/21/2016          (23,400     (23,442
    1.517        03/23/2016        09/23/2016          (3,563     (3,578
    1.524        07/01/2016        01/03/2017          (9,422     (9,422
    1.698        07/20/2015        07/19/2016          (2,597     (2,639
    1.732        07/27/2015        07/26/2016          (10,626     (10,800
    1.734        08/06/2015        08/05/2016          (7,510     (7,629
    1.751        10/22/2015        10/21/2016          (36,930     (37,384
    1.757        08/06/2015        08/05/2016          (14,005     (14,231
    1.759        10/26/2015        10/25/2016          (30,462     (30,833
    1.857        11/19/2015        11/18/2016          (12,478     (12,623
    1.861        11/18/2015        11/17/2016          (14,412     (14,580
    1.872        11/23/2015        11/22/2016          (19,863     (20,091
    1.924        04/01/2016        10/03/2016          (8,012     (8,051
    2.059        02/11/2016        02/10/2017          (21,599     (21,773
    2.065        02/02/2016        02/01/2017          (11,027     (11,122
    2.103        01/04/2016        01/03/2017          (13,468     (13,609
    2.208        04/13/2016        04/12/2017          (9,263     (9,308
    2.211        03/15/2016        03/14/2017          (76,130     (76,635
    2.212        03/08/2016        02/21/2017          (7,694     (7,748
    2.231        03/15/2016        03/14/2017          (17,497     (17,614
    2.239        04/25/2016        04/24/2017          (26,142     (26,251
    2.245        03/17/2016        03/16/2017          (11,950     (12,029
    2.253        06/16/2016        06/15/2017          (31,616     (31,646
    2.274        06/15/2016        06/09/2017          (4,773     (4,778
    2.337        05/31/2016        05/30/2017          (7,767     (7,783
    2.337        06/03/2016        06/02/2017          (18,230     (18,263

RYL

    0.725        04/18/2016        07/18/2016        EUR        (6,136     (6,820
    1.000        05/12/2016        08/12/2016        GBP        (7,468     (9,957

SOG

    0.950        06/22/2016        09/21/2016        $        (597     (597
    0.950        06/24/2016        09/21/2016          (647     (647
    0.970        05/02/2016        07/29/2016          (7,694     (7,706
    1.250        05/03/2016        07/29/2016          (10,208     (10,229
    1.250        05/13/2016        07/15/2016          (2,108     (2,112
    1.250        05/17/2016        07/29/2016          (1,719     (1,722
    1.270        05/12/2016        08/12/2016          (4,738     (4,746
    1.270        06/01/2016        09/01/2016          (15,309     (15,325
    1.290        04/13/2016        07/13/2016          (18,213     (18,265
    1.290        04/14/2016        07/14/2016          (2,683     (2,690
    1.290        04/15/2016        07/15/2016          (1,163     (1,166
    1.290        04/18/2016        07/18/2016          (2,039     (2,044
    1.290        04/20/2016        07/20/2016          (8,669     (8,691
    1.290        05/09/2016        08/09/2016          (14,483     (14,511
    1.290        05/19/2016        08/22/2016          (8,971     (8,985
    1.290        06/08/2016        09/01/2016          (24,169     (24,189
    1.290        06/21/2016        09/21/2016          (3,512     (3,513
    1.350        05/24/2016        08/24/2016          (10,150     (10,164
    1.390        06/10/2016        09/12/2016          (6,307     (6,312
    1.390        06/21/2016        09/21/2016          (5,705     (5,707
    2.375        04/07/2016        10/07/2016          (8,029     (8,074
    2.375        06/03/2016        12/06/2016          (9,438     (9,455
    2.375        06/06/2016        12/06/2016          (10,420     (10,437
    2.375        06/08/2016        12/09/2016          (33,213     (33,263
    2.375        06/10/2016        12/09/2016          (8,023     (8,034
    2.375        06/14/2016        12/14/2016          (46,662     (46,714
    2.384        07/28/2015        07/28/2016          (23,258     (23,357
    2.476        07/27/2015        07/26/2016              (22,232         (22,331

UBS

    0.350        06/17/2016        08/17/2016        EUR        (1,970     (2,186
    0.530        06/24/2016        09/26/2016          (27,054     (30,026
    0.950        04/13/2016        07/13/2016        GBP        (21,993     (29,344
    1.000        06/13/2016        08/15/2016          (14,930     (19,886
    1.050        05/31/2016        08/01/2016          (12,374     (16,488
    1.100        04/25/2016        07/25/2016          (1,311     (1,749
    1.150        06/08/2016        09/08/2016          (8,935     (11,904
    1.150        06/20/2016        08/22/2016          (21,061     (28,047
    1.200        06/22/2016        07/22/2016          (3,852     (5,130
    1.250        05/11/2016        08/11/2016          (5,471     (7,297
    1.260        06/06/2016        07/06/2016          (30,808     (41,051
    1.330        04/19/2016        07/19/2016        $        (8,317     (8,339

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   71


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

Counterparty   Borrowing
Rate  (3)
    Borrowing
Date
    Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 
    1.400     01/14/2016        07/14/2016        $        (1,256   $ (1,264
    1.430        04/15/2016        07/15/2016          (8,100     (8,125
    1.440        04/25/2016        07/25/2016          (2,786     (2,793
    1.490        04/28/2016        07/28/2016          (6,331     (6,348
    1.490        05/18/2016        08/18/2016        GBP        (40,254     (53,692
    1.500        01/14/2016        07/14/2016        $            (11,616     (11,698
    1.530        04/15/2016        07/15/2016          (5,120     (5,137
    1.530        04/20/2016        07/20/2016          (2,731     (2,739
    1.540        04/28/2016        07/28/2016          (2,784     (2,792
    1.550        01/14/2016        07/14/2016          (2,741     (2,761
    1.680        06/03/2016        09/06/2016          (8,044     (8,055
    2.080        05/09/2016        08/09/2016          (8,512     (8,538
    2.295        04/11/2016        10/11/2016          (8,483     (8,527
    2.342        01/04/2016        07/05/2016          (20,310     (20,547
    2.392        01/04/2016        07/05/2016          (18,221     (18,438
    2.395        04/11/2016        10/11/2016          (10,861     (10,920
    2.396        04/12/2016        10/11/2016          (8,207     (8,251
    2.399        04/14/2016        10/14/2016          (6,834     (6,870
           

 

 

 

Total Reverse Repurchase Agreements

  

      $     (2,380,836
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(2,117,018) at a weighted average interest rate of 1.534%.

 

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 (received)/pledged as of June 30, 2016:

 

(j) Securities with an aggregate market value of $3,008,092 and cash of $15,095 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

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

Global/Master Repurchase Agreement

            

BCY

  $ 0      $ (290,812   $ 0       $     (290,812   $ 390,943      $     100,131   

BPG

    0        (177,954     0         (177,954     240,362        62,408   

BPS

    0        (102,942     0         (102,942     129,637        26,695   

BRC

    0        (29,049     0         (29,049     36,637        7,588   

BSN

    96,002        0        0         96,002        (98,185     (2,183

DBL

    0        (58,109     0         (58,109     74,622        16,513   

DEU

    0        (67,862     0         (67,862     82,197        14,335   

GLM

    0        (27,404     0         (27,404     32,567        5,163   

GSC

    0        (100,251     0         (100,251     122,411        22,160   

JML

    0        (23,037     0         (23,037     28,700        5,663   

JPS

    0        (34,033     0         (34,033     48,498        14,465   

MSB

    0        (88,913     0         (88,913     123,179        34,266   

MSC

    0        (19,594     0         (19,594     29,416        9,822   

MYI

    0        (3,707     0         (3,707     4,457        750   

NOM

    9,200        (52,575     0         (43,375     54,204        10,829   

RBC

    0        (61,160     0         (61,160     77,328        16,168   

RCE

    0        (21,428     0         (21,428     26,630        5,202   

RDR

    130,803        (7,631     0         123,172            (124,875     (1,703

RTA

    0        (497,670     0         (497,670     608,547        110,877   

RYL

    0        (16,777     0         (16,777     17,964        1,187   

SOG

    0        (310,986     0         (310,986     389,262        78,276   

SSB

    6,219        0        0         6,219        (6,343     (124

UBS

    0        (388,942     0         (388,942     483,112        94,170   
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     242,224      $     (2,380,836   $     0          
 

 

 

   

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. The Fund and Subsidiary are recognized as two separate legal entities. As such, exposure cannot be netted. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

72   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

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

         

Asset-Backed Securities

  $ (6,376   $ (293,581   $ (139,849   $ (623,772   $ (1,063,578

Corporate Bonds & Notes

    (7,987     (264,994     (376,567     (69,080     (718,628

Non-Agency Mortgage-Backed Securities

    0        (162,375     (138,571     (232,642     (533,588

U.S. Government Agencies

    0        (5,369     (3,221     0        (8,590
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     (14,363   $     (726,319   $     (658,208   $     (925,494   $     (2,324,384
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

  $     (2,324,384
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(56,452) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (2)
    Market
Value  (3)
    Unrealized
Appreciation
    Variation Margin  
            Asset     Liability  

CDX.HY-25 5-Year Index

    5.000     12/20/2020      $     9,900      $     425      $     299      $     41      $     0   
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(2) 

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

(3) 

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

 

INTEREST RATE SWAPS

 

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

Receive

 

1-Year BRL-CDI

    16.400     01/04/2021        BRL        470,000      $ (18,198   $ (3,645   $ 0      $ (264

Pay

 

3-Month CAD-Bank Bill

    3.300        06/19/2024        CAD        102,200        13,514        8,768        84        0   

Receive

 

3-Month CAD-Bank Bill

    3.500        06/20/2044          46,900        (15,099     (13,427     0        (96

Pay

 

3-Month USD-LIBOR

    2.000        03/20/2023        $        171,000        10,077        4,668        0        (131

Pay

 

3-Month USD-LIBOR

    2.750        06/17/2025          624,940        76,823        36,832        0        (1,094

Pay

 

3-Month USD-LIBOR

    2.500        12/16/2025          137,100        14,174        13,184        0        (270

Receive

 

3-Month USD-LIBOR

    2.500        06/15/2046          402,600            (64,909         (47,113     4,354        0   

Pay

 

6-Month AUD-BBR-BBSW 

    3.631        03/06/2019        AUD        150,000        5,236        5,236        0        (41

Pay

 

6-Month AUD-BBR-BBSW 

    3.635        03/06/2019          175,000        6,123        6,123        0        (48

Pay

 

6-Month AUD-BBR-BBSW 

    3.500        06/17/2025          41,800        3,546        2,510        25        0   
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     31,287      $     13,136      $     4,463      $     (1,944
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

  

      $     31,712      $     13,435      $     4,504      $     (1,944
           

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   73


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of June 30, 2016:

 

(l) Securities with an aggregate market value of $25,876 and cash of $88,117 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016.

 

    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      $     4,504      $     4,504        $     0      $     0      $     (1,944)      $     (1,944)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(m)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
    Currency to
be Delivered
    Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
         Asset     Liability  

BOA

     08/2016      EUR     248      $     279      $ 4      $ 0   

BPS

     07/2016      BRL     63,342          18,586        0        (1,132
     07/2016      JPY     611,047          5,546        0        (371
     07/2016      $     19,734      BRL     63,342        0        (15
     07/2016          10,073      GBP     6,965        0        (801
     08/2016          18,442      BRL     63,342        1,105        0   

CBK

     07/2016      GBP     10,620      $     15,146        1,008        0   
     08/2016      CAD     3,300          2,547        0        (8
     08/2016      EUR     16,686          18,992        449        0   
     08/2016      GBP     4,661          6,286        79        0   
     08/2016      $     5,774      EUR     5,077        0        (132

DUB

     07/2016      GBP     3,069      $     4,493        407        0   

GLM

     07/2016          237          345        29        0   
     07/2016      $     5,663      GBP     3,850        0        (538
     08/2016      EUR     61,385      $     70,122        1,907        0   
     08/2016      $     3,677      EUR     3,260        0        (54

HUS

     07/2016      GBP     1,374      $     1,947        117        0   
     07/2016      $     1,163      AUD     1,576        12        0   

JPM

     07/2016      AUD     2,536      $     1,838        0        (53
     07/2016      BRL     63,342          19,734        15        0   
     07/2016      GBP     5,028          7,269        576        0   
     07/2016      $     17,399      BRL     63,342        2,320        0   
     07/2016          9,348      GBP     6,559        0        (616
     08/2016      CAD     1,315      $     1,029        11        0   
     08/2016      EUR     1,509          1,689        12        0   

MSB

     07/2016      GBP     79,478          116,792        10,987        0   
     07/2016      $     1,062      GBP     735        0        (84

SCX

     07/2016          5,997      JPY     611,047        0        (79
     08/2016      JPY     611,047      $     6,003        81        0   

SOG

     08/2016      EUR     3,056          3,426        30        0   

TDM

     07/2016      $     108,329      GBP     80,602        0        (1,028
     08/2016      GBP     80,602      $     108,356        1,029        0   

UAG

     07/2016      $     1,521      GBP     1,095        0        (63
     08/2016      EUR     2,081      $     2,351        39        (1
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

      $     20,217      $     (4,975
            

 

 

   

 

 

 

 

74   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

SWAP AGREEMENTS:

 

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

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
June 30, 2016 (2)
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000     03/20/2019        5.100     $        20,000      $ (1,735   $ (339   $ 0      $ (2,074
                   
BRC  

Banco Espirito Santo S.A.

    5.000        12/20/2020        13.935        EUR        2,500        (223     (427     0        (650
                   
CBK  

Navient Corp.

    5.000        09/20/2020        5.363        $        200        (3     1        0        (2
                   
GST  

Chesapeake Energy Corp.

    5.000        06/20/2019        13.323          100        (6     (14     0        (20
 

Petrobras Global Finance BV

    1.000        03/20/2019        5.100          15,000        (1,295     (261     0        (1,556
 

Petrobras Global Finance BV

    1.000        09/20/2020        6.191          1,120        (163     (50     0        (213
             

 

 

   

 

 

   

 

 

   

 

 

 
              $     (3,425   $     (1,090   $     0      $     (4,515
             

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Counterparty   Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation
    Swap Agreements,
at Value  (4)
 
              Asset     Liability  
BRC  

ABX.HE.AAA.6-2 Index

    0.110%        05/25/2046      $     11,439      $     (2,534     $    419      $     0      $     (2,115
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(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 an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

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

(4) 

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

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  

FBF

 

Pay

 

1-Year BRL-CDI

    12.230     01/04/2021      BRL     550,000      $ (278   $ 727      $ 449      $ 0   
 

Receive

 

1-Year BRL-CDI

    16.400        01/04/2021          80,000        (33     (3,049     0        (3,082
             

 

 

   

 

 

   

 

 

   

 

 

 
              $ (311   $ (2,322   $ 449      $ (3,082
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     (6,270   $     (2,993   $     449      $     (9,712
             

 

 

   

 

 

   

 

 

   

 

 

 

 

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 (received)/pledged as of June 30, 2016:

 

(n) Securities with an aggregate market value of $10,728 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

BOA

  $ 4       $ 0       $ 0       $ 4        $ 0      $ 0       $ 0      $ 0      $ 4      $ 0      $ 4   

BPS

    1,105           0         0         1,105            (2,319       0           (2,074     (4,393       (3,288     3,175          (113

BRC

    0         0         0         0          0        0         (2,765     (2,765     (2,765     2,792        27   

CBK

    1,536         0         0         1,536          (140     0         (2     (142     1,394          (1,098     296   

DUB

    407         0         0         407          0        0         0        0        407        (430     (23

FBF

    0         0           449         449          0        0         (3,082       (3,082     (2,633     2,858        225   

GLM

    1,936         0         0           1,936          (592     0         0        (592     1,344        (1,380     (36

GST

    0         0         0         0          0        0         (1,789     (1,789     (1,789     1,904        115   

HUS

    129         0         0         129          0        0         0        0        129        0        129   

JPM

      2,934         0         0         2,934          (669     0         0        (669     2,265        (1,616     649   

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   75


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

MSB

  $ 10,987       $ 0       $ 0       $ 10,987        $ (84   $ 0       $ 0      $ (84   $   10,903      $   (9,420   $   1,483   

MYC

    0         0         0         0          0        0         0        0        0        (120     (120

SCX

    81         0         0         81          (79     0         0        (79     2        0        2   

SOG

    30         0         0         30          0        0         0        0        30        0        30   

TDM

    1,029         0         0         1,029          (1,028     0         0        (1,028     1        0        1   

UAG

    39         0         0         39          (64     0         0        (64     (25     0        (25
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $   20,217       $   0       $   449       $   20,666        $   (4,975   $   0       $   (9,712   $   (14,687      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(5) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC derivatives can only be netted across transactions governed under the same master agreement with the same legal entity. The Fund and Subsidiary are recognized as two separate legal entities. As such, exposure cannot be netted. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting agreements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Consolidated Statements of Assets and Liabilities as of June 30, 2016:

 

    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      $ 41      $ 0      $ 0      $ 4,463      $ 4,504   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 20,217      $ 0      $ 20,217   

Swap Agreements

    0        0        0        0        449        449   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 0      $ 0      $     20,217      $ 449      $ 20,666   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 41      $ 0      $     20,217      $ 4,912      $ 25,170   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 1,944      $ 1,944   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 4,975      $ 0      $ 4,975   

Swap Agreements

    0        6,630        0        0        3,082        9,712   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     6,630      $     0      $ 4,975      $     3,082      $     14,687   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     6,630      $     0      $ 4,975      $     5,026      $     16,631   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Consolidated Statements of Operations for the period ended June 30, 2016:

 

    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      $ 370      $ 0      $ 0      $ (25,780   $     (25,410
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 41,014      $ 0      $ 41,014   

Purchased Options

    0        0        0        0        (6,342     (6,342

Swap Agreements

    0        45        0        0        (9,131     (9,086
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 45      $ 0      $ 41,014      $     (15,473   $     25,586   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 415      $ 0      $ 41,014      $     (41,253   $ 176   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

     

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 2,170      $ 0      $ 0      $ 6,810      $ 8,980   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ (1,924   $ 0      $ (1,924

Swap Agreements

    0        2,359        0        0        (3,518     (1,159
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     2,359      $     0      $     (1,924   $ (3,518   $ (3,083
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     4,529      $     0      $     (1,924   $ 3,292      $ 5,897   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

76   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Investments in Securities, at Value

  

   

Bank Loan Obligations

  $ 0      $ 98,539      $ 1,726      $ 100,265   

Corporate Bonds & Notes

       

Banking & Finance

    0        432,251        103,051        535,302   

Industrials

    0        471,769        44,189        515,958   

Utilities

    0        204,601        4,493        209,094   

Municipal Bonds & Notes

       

Iowa

    0        1,418        0        1,418   

New Jersey

    0        0        6,944        6,944   

West Virginia

    0        13,681        0        13,681   

U.S. Government Agencies

    0        23,399        0        23,399   

Non-Agency Mortgage-Backed Securities

    0        1,186,803        18,261        1,205,064   

Asset-Backed Securities

    0        2,123,683        29,864        2,153,547   

Sovereign Issues

    0        9,504        0        9,504   

Common Stocks

       

Financials

    0        0        1,694        1,694   

Short-Term Instruments

       

Repurchase Agreements

    0        242,219        0        242,219   

U.S. Treasury Bills

    0        37,375        0        37,375   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     0      $     4,845,242      $     210,222      $     5,055,464   
 

 

 

   

 

 

   

 

 

   

 

 

 
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Financial Derivative Instruments - Assets

  

Exchange-traded or centrally cleared

  $ 0      $ 4,504      $ 0      $ 4,504   

Over the counter

    0        20,666        0        20,666   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 25,170      $ 0      $ 25,170   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (1,944     0        (1,944

Over the counter

    0        (14,687     0        (14,687
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (16,631   $ 0      $ (16,631
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     0      $     4,853,781      $     210,222      $     5,064,003   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
   

Realized

Gain/(Loss)

    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

             

Bank Loan Obligations

  $ 12,437      $ 0      $ 0      $ 42      $ 0      $ (761   $ 0      $ (9,992   $ 1,726      $ (646

Corporate Bonds & Notes

  

             

Banking & Finance

    211,030        9,119        (23,794     (64     (67     (2,390     0        (90,783     103,051        55   

Industrials

    23,392        19,437        (1     37        0        1,324        0        0        44,189        1,323   

Utilities

    4,636        0        (233     0        0        90        0        0        4,493        94   

Municipal Bonds & Notes

  

             

New Jersey

    6,972        0        (160     (3     (1     136        0        0        6,944        138   

Non-Agency Mortgage-Backed Securities

    33,505        19,254        (31,056     53        1,007        (1,164     0        (3,338     18,261        45   

Asset-Backed Securities

    2,855        29,154        (2,795     (2     105        547        0        0        29,864        710   

Common Stocks

  

                 

Financials

    2,666        0        0        0        0        (972     0        0        1,694        (972
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     297,493      $     76,964      $     (58,039   $     63      $     1,044      $     (3,190   $     0      $     (104,113   $     210,222      $     747   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   77


Consolidated Schedule of Investments PIMCO Dynamic Credit and Mortgage Income Fund (Cont.)

 

June 30, 2016

 

 

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 06/30/2016
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

  

        

Bank Loan Obligations

  $ 1,726         Other Valuation Techniques (2)                   

Corporate Bonds & Notes

  

        

Banking & Finance

    45,929         Proxy Pricing         Base Price         102.67-108.25   
    57,122         Reference Instrument         Spread movement         37.00-324.53 bps   

Industrials

    44,189         Proxy Pricing         Base Price         100.00-100.09   

Utilities

    4,493         Proxy Pricing         Base Price         102.13   

Municipal Bonds & Notes

  

        

New Jersey

    6,944         Proxy Pricing         Base Price         101.83   

Non-Agency Mortgage-Backed Securities

    18,261         Proxy Pricing         Base Price         48.13-66.94   

Asset-Backed Securities

    29,864         Proxy Pricing         Base Price         115,005.75   

Common Stocks

          

Financials

    1,694         Other Valuation Techniques (2)                   
 

 

 

          

Total

  $     210,222            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 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.

 

78   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Schedule of Investments PIMCO Dynamic Income Fund

 

June 30, 2016

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 184.6%   
BANK LOAN OBLIGATIONS 1.2%   

Energy Future Intermediate Holding Co. LLC

  

4.250% due 12/19/2016

  $     14,214      $     14,210   

OGX (13.000% PIK)

  

13.000% due 04/10/2049 (b)

      646          529   
       

 

 

 

Total Bank Loan Obligations (Cost $14,749)

      14,739   
       

 

 

 
CORPORATE BONDS & NOTES 21.7%   
BANKING & FINANCE 10.7%   

AGFC Capital Trust

  

6.000% due 01/15/2067 (k)

      12,900          6,063   

Banco Continental SAECA

  

8.875% due 10/15/2017 (k)

      9,100          9,271   

Banco do Brasil S.A.

  

3.875% due 10/10/2022 (k)

      3,604          3,325   

Barclays Bank PLC

  

7.625% due 11/21/2022

      5,700          6,145   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (g)

      6,000          5,881   

Cantor Fitzgerald LP

  

7.875% due 10/15/2019 (k)

      6,540          7,351   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023 (k)

      2,900          2,951   

Cooperatieve Rabobank UA

  

6.875% due 03/19/2020 (k)

  EUR     2,900          3,774   

Credit Suisse AG

  

6.500% due 08/08/2023 (k)

  $     800          840   

Exeter Finance Corp.

  

9.750% due 05/20/2019

      9,700          9,141   

Jefferies LoanCore LLC

  

6.875% due 06/01/2020 (k)

      2,300          2,024   

KGH Intermediate Holdco LLC

  

8.500% due 08/08/2019 (i)

      17,308          16,107   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     300          333   

Pinnacol Assurance

  

8.625% due 06/25/2034 (i)

  $     10,200          11,310   

Preferred Term Securities Ltd.

  

1.033% due 09/23/2035

      917          743   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (g)

      7,189          6,632   

8.000% due 08/10/2025 (g)

      2,100          1,963   

Royal Bank of Scotland PLC

  

6.934% due 04/09/2018 (k)

  EUR     2,900          3,485   

Sberbank of Russia Via SB Capital S.A.

  

3.352% due 11/15/2019 (k)

      5,800          6,785   

6.125% due 02/07/2022 (k)

  $     7,300          8,089   

6.125% due 02/07/2022

      400          443   

Springleaf Finance Corp.

  

8.250% due 12/15/2020

      280          281   

Tesco Property Finance PLC

  

6.052% due 10/13/2039

  GBP     2,089          2,777   

TIG FinCo PLC

  

8.500% due 03/02/2020

      997          1,339   

8.750% due 04/02/2020 (k)

      5,647          5,563   

Toll Road Investors Partnership LP

  

0.000% due 02/15/2045 (e)

  $     26,623          6,863   

Vnesheconombank Via VEB Finance PLC

  

6.902% due 07/09/2020

      1,300          1,411   
       

 

 

 
            130,890   
       

 

 

 
INDUSTRIALS 6.1%   

Buffalo Thunder Development Authority

  

0.000% due 11/15/2029 (e)(i)

      2,483          1   

11.000% due 12/09/2022

      5,598          2,659   

Caesars Entertainment Operating Co., Inc.

  

9.000% due 02/15/2020 (h)

      18,800          17,437   

Chesapeake Energy Corp.

  

3.878% due 04/15/2019

      220          167   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Diamond 1 Finance Corp.

  

5.450% due 06/15/2023 (k)

  $     291      $     302   

6.020% due 06/15/2026 (k)

      269          280   

Hellenic Railways Organization S.A.

  

5.014% due 12/27/2017

  EUR     300          315   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021 (k)

  $     6,000          1,500   

8.125% due 06/01/2023 (k)

      8,785          2,218   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019 (k)

      8,490          7,514   

Millar Western Forest Products Ltd.

  

8.500% due 04/01/2021 (k)

      5,214          2,424   

Numericable SFR S.A.

  

6.000% due 05/15/2022 (k)

      1,700          1,660   

OGX Austria GmbH

  

8.500% due 06/01/2018 ^

      16,700          0   

Petroleos de Venezuela S.A.

  

5.500% due 04/12/2037

      7,000          2,415   

Spirit Issuer PLC

  

5.472% due 12/28/2028 (k)

  GBP     12,120          16,316   

UCP, Inc.

  

8.500% due 10/21/2017

  $     10,600          10,671   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     1,129          1,501   

6.542% due 03/30/2021

      4,676          6,450   

Urbi Desarrollos Urbanos S.A.B. de C.V.

  

9.750% due 02/03/2022 ^

  $     5,000          7   
       

 

 

 
    73,837   
       

 

 

 
UTILITIES 4.9%   

Frontier Communications Corp.

  

10.500% due 09/15/2022

      1,690          1,795   

11.000% due 09/15/2025

      1,690          1,762   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022

      2,000          1,980   

6.000% due 11/27/2023 (k)

      38,000          40,734   

Petrobras Global Finance BV

  

4.875% due 03/17/2020 (k)

      2,860          2,688   

6.250% due 12/14/2026

  GBP     1,500          1,605   

6.625% due 01/16/2034

      700          699   

6.750% due 01/27/2041 (k)

  $     6,246          5,044   

6.850% due 06/05/2115

      1,145          876   

6.875% due 01/20/2040

      113          92   

7.875% due 03/15/2019 (k)

      2,900          3,001   
       

 

 

 
          60,276   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $284,831)

      265,003   
       

 

 

 
MUNICIPAL BONDS & NOTES 0.1%   
ILLINOIS 0.1%   

Chicago, Illinois General Obligation Bonds, Series 2015

  

7.375% due 01/01/2033

      430          454   

7.750% due 01/01/2042

      760          772   
       

 

 

 

Total Municipal Bonds & Notes (Cost $1,170)

    1,226   
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.4%   

Fannie Mae

  

5.467% due 07/25/2041 (a)(k)

      7,939          1,356   

5.617% due 10/25/2040 (a)(k)

      12,663          2,225   

5.897% due 12/25/2037 (a)

      391          63   

5.987% due 03/25/2037 -
04/25/2037 (a)(k)

      27,319          5,179   

6.047% due 02/25/2037 (a)

      291          51   

6.067% due 09/25/2037 (a)(k)

      1,332          271   

6.197% due 11/25/2036 (a)

      228          39   

6.267% due 06/25/2037 (a)(k)

      1,011          140   

6.297% due 10/25/2035 (a)(k)

      3,335          665   

6.527% due 03/25/2038 (a)(k)

      2,807          642   

6.547% due 02/25/2038 (a)(k)

      1,851          391   

6.647% due 06/25/2023 (a)(k)

      2,697          357   

11.355% due 01/25/2041 (k)

      5,985          8,507   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Freddie Mac

  

5.103% due 10/25/2028

  $   2,000   $     1,953   

5.968% due 05/15/2037 (a)

    267       41   

6.028% due 07/15/2036 (a)(k)

    3,725       695   

6.138% due 09/15/2036 (a)(k)

    1,337       282   

6.258% due 04/15/2036 (a)(k)

    2,524       400   

7.338% due 09/15/2036 (a)(k)

    2,344       675   

10.953% due 10/25/2028

    500       504   

11.203% due 03/25/2025

    3,280       3,284   

13.180% due 09/15/2041

    602       922   

15.770% due 09/15/2034

    241       292   
       

 

 

 

Total U.S. Government Agencies
(Cost $28,099)

      28,934   
       

 

 

 
U.S. TREASURY OBLIGATIONS 0.5%   

U.S. Treasury Floating Rate Notes

  

0.450% due 04/30/2018 (m)(o)

  5,800       5,802   
       

 

 

 

Total U.S. Treasury Obligations (Cost $5,800)

    5,802   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 100.6%   

Alba PLC

  

0.832% due 12/15/2038

  GBP   10,322       10,402   

American Home Mortgage Assets Trust

  

0.736% due 08/25/2037 ^

  $   11,577       5,718   

0.993% due 11/25/2035 (k)

    3,222       2,827   

6.250% due 06/25/2037 (k)

    9,401       7,240   

American Home Mortgage Investment Trust

  

0.753% due 09/25/2045 (k)

    7,788       6,591   

1.353% due 02/25/2044 (k)

    9,739       6,349   

Banc of America Alternative Loan Trust

  

0.853% due 05/25/2035 ^(k)

  1,116       839   

6.000% due 06/25/2037

    477       399   

6.000% due 06/25/2046

    182       150   

Banc of America Commercial Mortgage Trust

  

5.695% due 07/10/2046

    4,400       4,293   

Banc of America Funding Trust

  

0.000% due 06/26/2035

    10,469       8,725   

0.000% due 07/26/2036

    14,797       8,484   

0.658% due 04/20/2047 ^(k)

  23,959       18,852   

0.658% due 08/25/2047 ^

    8,707       6,332   

0.898% due 02/20/2035

    4,612       3,653   

2.930% due 01/20/2047 ^

    329       269   

2.939% due 01/25/2035

    529       231   

3.043% due 03/20/2036 ^(k)

    2,720       2,349   

Banc of America Mortgage Trust

  

2.747% due 10/20/2046 ^

    414       251   

2.789% due 01/25/2036

    1,166       1,035   

Banc of America Re-REMIC Trust

  

5.673% due 02/17/2051 (k)

    38,264       38,988   

Bancaja Fondo de Titulizacion de Activos

  

0.057% due 10/25/2037 (k)

  EUR   2,668       2,863   

Bayview Commercial Asset Trust

  

0.883% due 08/25/2034

  $   201       184   

BCAP LLC Trust

  

2.563% due 07/26/2045

    7,018       6,137   

2.582% due 11/26/2035 (k)

    9,500       8,165   

2.624% due 07/26/2035

    4,088       3,502   

2.751% due 10/26/2035

    6,052       5,152   

2.835% due 02/26/2036

    7,791       5,472   

3.019% due 03/26/2035

    8,051       7,619   

3.070% due 04/26/2037 (k)

    24,319       17,450   

3.191% due 06/26/2036

    6,092       5,129   

5.500% due 12/26/2035 (k)

    10,818       9,060   

6.000% due 08/26/2037

    6,325       5,383   

Bear Stearns Adjustable Rate Mortgage Trust

  

4.692% due 06/25/2047 ^(k)

    5,615       5,006   

Bear Stearns ALT-A Trust

  

0.653% due 02/25/2034 (k)

    8,577       6,947   

2.947% due 11/25/2035 ^

    25,730       19,068   

3.050% due 09/25/2035 ^(k)

  13,292       10,060   

BRAD Resecuritization Trust

  

2.180% due 03/12/2021

    27,338       2,003   

6.550% due 03/12/2021

    5,110       5,276   
 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   79


Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

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

Celtic Residential Irish Mortgage Securitisation PLC

  

0.001% due 11/13/2047 (k)

  EUR   22,982   $     23,815   

0.031% due 12/14/2048

    6,545       6,649   

0.067% due 03/18/2049

    4,674       4,814   

0.098% due 04/10/2048

    9,024       9,156   

Chase Mortgage Finance Trust

  

2.629% due 01/25/2036 (k)

  $   15,474         14,201   

2.847% due 03/25/2037 ^(k)

    4,522       3,829   

Citigroup Mortgage Loan Trust, Inc.

  

2.730% due 03/25/2036 ^

    843       810   

2.753% due 02/25/2036

    8,643       5,448   

2.929% due 10/25/2035 ^(k)

    7,760       6,905   

3.028% due 09/25/2037 ^(k)

    10,214       9,328   

Countrywide Alternative Loan Trust

  

0.643% due 09/25/2046 ^(k)

    17,682       13,358   

0.749% due 12/25/2035 (a)

    19,381       691   

1.183% due 11/25/2035 (k)

    21,505       17,547   

1.670% due 12/25/2035 (a)

    12,342       814   

3.171% due 06/25/2047

    297       219   

5.500% due 02/25/2020 (k)

    322       323   

5.500% due 07/25/2035 ^(k)

    2,646       2,167   

5.500% due 11/25/2035 ^(k)

    964       813   

5.500% due 01/25/2036 ^

    209       194   

5.500% due 04/25/2037 (k)

    3,669       2,838   

5.750% due 01/25/2036

    336       251   

5.750% due 01/25/2037 ^(k)

    11,521       8,909   

5.750% due 04/25/2037 ^(k)

    3,697       3,130   

6.000% due 06/25/2036 ^

    564       449   

6.000% due 11/25/2036 ^

    589       506   

6.000% due 12/25/2036

    268       181   

6.000% due 01/25/2037 ^(k)

    2,665       2,149   

6.000% due 02/25/2037 ^(k)

    1,072       710   

6.000% due 03/25/2037 ^(k)

    18,117       10,902   

6.000% due 04/25/2037 ^(k)

    8,249       5,288   

6.000% due 07/25/2037 ^

    2,702       2,518   

6.697% due 07/25/2036 (a)

    14,910       4,755   

36.280% due 05/25/2037 ^

    1,566       3,011   

Countrywide Home Loan Mortgage Pass-Through Trust

  

0.793% due 03/25/2036

    3,154       1,634   

1.053% due 03/25/2035

    237       212   

2.641% due 11/20/2035 (k)

    14,438       11,654   

4.983% due 06/25/2047 ^(k)

    10,742       9,286   

5.000% due 11/25/2035 ^

    78       68   

5.500% due 12/25/2034

    174       163   

5.500% due 11/25/2035 ^

    95       84   

6.000% due 07/25/2037 ^

    388       312   

6.000% due 08/25/2037 ^

    4       4   

6.000% due 08/25/2037 (k)

    8,945       7,487   

6.000% due 01/25/2038 ^

    309       257   

Credit Suisse Commercial Mortgage Trust

  

6.500% due 07/26/2036 ^(k)

    14,470       8,044   

Credit Suisse Mortgage Capital Certificates

  

2.670% due 07/26/2049 (k)

    10,063       7,455   

3.026% due 04/26/2035 (k)

    27,326       22,439   

3.564% due 02/27/2047 (k)

    64,227       40,375   

4.411% due 07/26/2037 (k)

    13,267       10,544   

5.692% due 04/16/2049 (k)

    10,000       10,113   

7.000% due 08/26/2036

    18,344       8,474   

7.000% due 08/27/2036

    4,680       2,874   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

5.896% due 04/25/2036 (k)

    10,015       7,108   

CSAB Mortgage-Backed Trust

  

5.500% due 05/25/2037 ^(k)

    6,596       5,788   

Debussy PLC

  

5.930% due 07/12/2025

  GBP   21,250       28,218   

8.250% due 07/12/2025

    5,000       5,565   

Deutsche ALT-A Securities, Inc.

  

6.000% due 10/25/2021 ^(k)

  $   1,054       893   

Diversity Funding Ltd.

  

1.127% due 02/10/2046 (k)

  GBP   267       353   

1.477% due 02/10/2046

    1,310       1,657   

1.977% due 02/10/2046

    1,193       1,350   

2.477% due 02/10/2046

    1,170       1,168   

3.727% due 02/10/2046

    702       327   

4.227% due 02/10/2046 ^

    234       6   

Emerald Mortgages PLC

  

0.001% due 07/15/2048 (k)

  EUR   25,405       26,554   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Epic Drummond Ltd.

  

0.044% due 01/25/2022

  EUR   7,215   $     7,164   

First Horizon Alternative Mortgage Securities Trust

  

2.513% due 08/25/2035 ^

  $   5,566       1,331   

6.647% due 11/25/2036 (a)

    1,918       661   

First Horizon Mortgage Pass-Through Trust

  

5.500% due 08/25/2037 ^

    730       599   

Fondo de Titulizacion de Activos UCI

  

1.000% due 06/16/2049

  EUR   1,812       1,523   

GreenPoint Mortgage Funding Trust

  

0.653% due 12/25/2046 ^

  $   4,686       3,039   

Grifonas Finance PLC

  

0.152% due 08/28/2039

  EUR   13,703       10,948   

GSR Mortgage Loan Trust

  

3.024% due 11/25/2035

  $   325       293   

6.500% due 08/25/2036 ^

    1,143       879   

HarborView Mortgage Loan Trust

  

0.679% due 03/19/2036 (k)

    23,293       16,652   

0.698% due 01/19/2036 (k)

    11,092       7,557   

1.098% due 06/20/2035 (k)

    13,412       11,294   

1.348% due 06/20/2035 (k)

    3,052       2,183   

Hipocat FTA

  

0.000% due 10/24/2039

  EUR   4,177       3,548   

0.000% due 01/15/2050

    7,420       6,043   

Impac CMB Trust

  

1.173% due 10/25/2034

  $   364       315   

Impac Secured Assets Trust

  

0.563% due 05/25/2037 ^

    21       14   

IndyMac Mortgage Loan Trust

  

0.653% due 11/25/2046 (k)

    9,338       6,761   

0.703% due 02/25/2037 (k)

    4,700       2,839   

0.753% due 07/25/2036

    815       604   

3.123% due 06/25/2037 ^(k)

    6,965       5,111   

3.125% due 02/25/2035

    530       456   

4.485% due 03/25/2037

    82       73   

JPMorgan Alternative Loan Trust

  

0.653% due 06/25/2037 (k)

    43,639       25,129   

3.245% due 11/25/2036 ^(k)

    4,602       4,503   

5.960% due 12/25/2036 ^(k)

    9,530       8,246   

JPMorgan Chase Commercial Mortgage Securities Trust

  

1.873% due 06/15/2045 (a)(k)

    55,718       3,335   

JPMorgan Mortgage Trust

  

2.940% due 06/25/2037 ^(k)

    7,436       6,506   

4.680% due 10/25/2036

    1,773       1,519   

Lavender Trust

  

5.500% due 09/26/2035

    6,895       6,109   

6.000% due 11/26/2036

    15,316         12,026   

LB-UBS Commercial Mortgage Trust

  

0.737% due 02/15/2040 (a)(k)

    208,653       665   

5.518% due 02/15/2040

    1,700       1,726   

Lehman Mortgage Trust

  

5.500% due 11/25/2035 ^

    108       99   

6.000% due 08/25/2036 ^

    1,447       1,219   

6.000% due 09/25/2036 ^(k)

    1,025       866   

6.500% due 09/25/2037 ^(k)

    6,344       4,823   

7.250% due 09/25/2037 ^(k)

    35,967       18,095   

Lehman XS Trust

  

0.733% due 07/25/2037

    25,675       9,087   

0.953% due 07/25/2047

    3,862       1,477   

MASTR Adjustable Rate Mortgages Trust

  

0.653% due 05/25/2047 (k)

    27,366       21,272   

0.793% due 05/25/2047 ^

    4,938       2,276   

MASTR Alternative Loan Trust

  

0.803% due 03/25/2036 (k)

    23,675       3,994   

0.853% due 03/25/2036

    31,178       5,371   

Merrill Lynch Mortgage Investors Trust

  

3.164% due 05/25/2036

    12,117       9,835   

Morgan Stanley Re-REMIC Trust

  

2.765% due 01/26/2035 (k)

    11,082       9,779   

2.765% due 02/26/2037

    6,285       5,351   

2.822% due 09/26/2035

    4,998       4,425   

2.887% due 07/26/2035 (k)

    26,634       22,522   

6.000% due 04/26/2036

    7,969       7,572   

Newgate Funding PLC

  

0.772% due 12/15/2050

  GBP   2,057       2,265   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

0.987% due 12/15/2050

  EUR   2,323   $     2,217   

1.237% due 12/15/2050

    4,435       3,778   

1.822% due 12/15/2050

  GBP   3,506       3,883   

NovaStar Mortgage Funding Trust

  

0.636% due 09/25/2046 (k)

  $   777       634   

RBSSP Resecuritization Trust

  

2.405% due 07/26/2045 (k)

    20,150       16,533   

2.945% due 05/26/2037 (k)

    11,342       8,862   

6.000% due 03/26/2036 ^

    9,272       7,461   

Residential Accredit Loans, Inc. Trust

  

0.633% due 07/25/2036 (k)

    13,296       8,403   

0.643% due 05/25/2037 (k)

    23,683       19,521   

1.437% due 01/25/2046 ^(k)

    9,319       6,443   

4.594% due 01/25/2036 (k)

    1,133       880   

6.000% due 08/25/2035 ^

    1,151       1,043   

6.000% due 06/25/2036

    539       458   

6.000% due 09/25/2036 ^(k)

    6,831       4,654   

7.000% due 10/25/2037 (k)

    14,946       12,218   

Residential Asset Securitization Trust

  

5.500% due 07/25/2035

    1,204       1,087   

6.250% due 08/25/2037 ^

    4,697       2,587   

Residential Funding Mortgage Securities, Inc. Trust

  

4.579% due 08/25/2036 ^(k)

    3,156       2,747   

5.850% due 11/25/2035 ^

    261       251   

6.000% due 04/25/2037 ^(k)

    2,513       2,227   

Rite Aid Pass-Through Certificates

  

6.789% due 01/02/2021

    11,000       11,655   

Sequoia Mortgage Trust

  

0.818% due 07/20/2036 (k)

    1,513       924   

1.648% due 10/20/2027

    1,200       1,014   

Southern Pacific Securities PLC

  

4.075% due 12/10/2042

  GBP   2,722       3,863   

Structured Adjustable Rate Mortgage Loan Trust

  

3.062% due 04/25/2047 (k)

  $   3,610       2,791   

4.078% due 02/25/2037 ^(k)

    14,172       10,234   

4.393% due 08/25/2036 (k)

    4,694       2,558   

Structured Asset Mortgage Investments Trust

  

0.623% due 03/25/2037 ^

    2,352       767   

0.643% due 07/25/2046 ^(k)

    24,945       19,689   

2.935% due 02/25/2036

    7,616       5,486   

SunTrust Alternative Loan Trust

  

6.697% due 04/25/2036 ^(a)

    5,998       2,394   

TBW Mortgage-Backed Trust

  

6.500% due 07/25/2036 (k)

    24,519       13,460   

Theatre Hospitals PLC

  

3.588% due 10/15/2031

  GBP   18,546       23,590   

4.338% due 10/15/2031

    866       1,067   

WaMu Mortgage Pass-Through Certificates Trust

  

0.873% due 06/25/2044

  $   344       309   

1.187% due 06/25/2047 ^

    9,532       3,223   

1.220% due 07/25/2047 (k)

    28,667       22,987   

1.317% due 10/25/2046 ^

    656       516   

1.437% due 02/25/2046

    84       77   

1.746% due 07/25/2047 ^

    1,059       713   

3.910% due 03/25/2037 ^(k)

    5,904       4,893   

4.198% due 02/25/2037 ^(k)

    400       363   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

0.693% due 01/25/2047 ^(k)

    15,624       11,722   

1.053% due 07/25/2036 ^(k)

    9,859       5,528   

6.000% due 04/25/2037 ^(k)

    5,608       4,737   

Wells Fargo Alternative Loan Trust

  

3.083% due 07/25/2037 ^(k)

    6,978       5,920   

5.750% due 07/25/2037 ^(k)

    730       645   

Wells Fargo Mortgage Loan Trust

  

3.194% due 04/27/2036 (k)

    28,600       25,719   

Wells Fargo Mortgage-Backed Securities Trust

  

6.000% due 07/25/2036 ^

    334       338   

6.000% due 09/25/2036 ^(k)

    680       661   

6.000% due 04/25/2037 ^

    233       229   

6.000% due 06/25/2037 ^

    527       524   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $1,093,072)

      1,230,059   
       

 

 

 
 

 

80   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 
ASSET-BACKED SECURITIES 45.5%   

Asset-Backed Funding Certificates Trust

  

1.503% due 03/25/2034 (k)

  $   1,704   $     1,350   

Bear Stearns Asset-Backed Securities Trust

  

1.003% due 06/25/2036 (k)

    8,846       7,794   

2.115% due 10/25/2036

    5,928       4,171   

Citigroup Mortgage Loan Trust, Inc.

  

0.613% due 12/25/2036 (k)

    23,638       15,235   

0.673% due 12/25/2036 (k)

    12,870       7,191   

0.713% due 03/25/2037 (k)

    33,110       25,474   

5.252% due 03/25/2036 ^(k)

    2,907       2,035   

5.852% due 05/25/2036 ^

    648       402   

Conseco Finance Securitizations Corp.

  

7.960% due 05/01/2031 (k)

    9,069       6,686   

7.970% due 05/01/2032 (k)

    16,301       9,646   

8.200% due 05/01/2031 (k)

    26,884       20,307   

9.163% due 03/01/2033 (k)

    9,643       8,605   

Conseco Financial Corp.

  

7.060% due 02/01/2031 (k)

    6,024       6,210   

7.500% due 03/01/2030

    9,524       7,930   

Countrywide Asset-Backed Certificates

  

0.583% due 12/25/2036 ^(k)

    19,242       17,423   

0.623% due 06/25/2047 (k)

    7,459       6,953   

0.653% due 04/25/2036 (k)

    1,326       1,314   

0.653% due 06/25/2037 ^(k)

    11,744       7,992   

0.653% due 06/25/2047 (k)

    29,614       20,211   

0.713% due 01/25/2046 ^

    34,556       15,550   

0.873% due 06/25/2036 ^

    2,500       1,367   

1.253% due 03/25/2033

    23       21   

1.833% due 12/25/2032 ^

    622       573   

4.576% due 02/25/2036 (k)

    264       272   

4.919% due 07/25/2036 (k)

    1,490       1,469   

5.505% due 04/25/2036 (k)

    907       900   

5.588% due 08/25/2036 (k)

    916       910   

Countrywide Asset-Backed Certificates Trust

  

0.693% due 03/25/2047 (k)

    7,655       4,502   

1.253% due 08/25/2047 (k)

    13,768       11,746   

4.841% due 10/25/2046 ^(k)

    3,336       2,668   

Countrywide Home Equity Loan Trust

  

5.839% due 03/25/2034

    997       2,498   

Credit-Based Asset Servicing and Securitization LLC

  

5.340% due 10/25/2036 (k)

    10,800       10,515   

EMC Mortgage Loan Trust

  

0.896% due 12/25/2042

    138       132   

0.916% due 04/25/2042 (k)

    7,876       7,516   

2.703% due 04/25/2042

    2,813       2,236   

First Franklin Mortgage Loan Trust

  

0.953% due 12/25/2035 (k)

    23,487         16,469   

GMAC Mortgage Corp. Home Equity Loan Trust

  

6.249% due 12/25/2037 (k)

    6,041       6,018   

GSAMP Trust

  

2.328% due 06/25/2034 (k)

    1,991       1,600   

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

   

7.208% due 12/25/2031 ^

    1,093       368   

JPMorgan Mortgage Acquisition Corp.

  

1.073% due 12/25/2035

    16,459       11,768   

KGS Alpha SBA Trust

  

1.022% due 04/25/2038 (a)

    4,508       166   

Lehman XS Trust

  

6.170% due 06/24/2046 (k)

    5,779       5,224   
        PRINCIPAL
AMOUNT
(000S)
      MARKET
VALUE
(000S)
 

Long Beach Mortgage Loan Trust

  

0.713% due 08/25/2045 (k)

  $   40,163   $     31,281   

1.503% due 02/25/2034

    198       190   

1.503% due 06/25/2035 (k)

    27,300       21,003   

MASTR Asset-Backed Securities Trust

  

0.603% due 03/25/2036 (k)

    8,426       5,256   

0.833% due 01/25/2036

    400       312   

Mid-State Capital Corp. Trust

  

6.742% due 10/15/2040

    6,983       7,459   

Morgan Stanley ABS Capital, Inc. Trust

  

0.553% due 11/25/2036

    2,092       1,223   

0.783% due 02/25/2037

    7,010       4,148   

Morgan Stanley Home Equity Loan Trust

  

0.683% due 04/25/2037 (k)

    35,719       21,751   

Oakwood Mortgage Investors, Inc.

  

5.920% due 06/15/2031

    8,896       3,230   

6.610% due 06/15/2031

    5,429       2,180   

7.400% due 07/15/2030 (k)

    23,046       14,350   

7.405% due 06/15/2031

    7,053       3,145   

7.840% due 11/15/2029 (k)

    4,472       4,480   

8.490% due 10/15/2030 ^

    1,496       420   

Option One Mortgage Loan Trust

  

0.813% due 01/25/2036 (k)

    20,000       13,178   

Popular ABS Mortgage Pass-Through Trust

  

1.703% due 08/25/2035 (k)

    3,663       3,245   

Residential Asset Mortgage Products Trust

  

1.428% due 04/25/2034 (k)

    10,748       9,321   

Residential Asset Securities Corp. Trust

  

0.613% due 06/25/2036 (k)

    3,952       3,829   

0.693% due 08/25/2036 (k)

    11,000       7,482   

Saxon Asset Securities Trust

  

0.903% due 11/25/2037 (k)

    13,000       9,296   

SLM Student Loan Trust

  

0.010% due 10/28/2029

    11       13,065   

Sorin Real Estate CDO Ltd.

  

1.164% due 10/28/2046

    7,400       6,148   

Soundview Home Loan Trust

  

0.733% due 06/25/2037 (k)

    10,415       6,729   

0.953% due 03/25/2036 (k)

    16,905       12,449   

South Coast Funding Ltd.

  

0.890% due 01/06/2041

    4,888       1,381   

0.890% due 01/06/2041 (k)

    161,454       45,611   

Structured Asset Securities Corp.

  

5.834% due 05/25/2032 ^

    7,139       5,785   

Tropic CDO Ltd.

  

0.948% due 07/15/2036

    6,137       3,989   

1.508% due 07/15/2034 (k)

    22,500       11,925   

Vanderbilt Acquisition Loan Trust

  

7.330% due 05/07/2032 (k)

    1,051       1,121   
       

 

 

 

Total Asset-Backed Securities
(Cost $564,974)

      556,399   
       

 

 

 
SOVEREIGN ISSUES 1.3%   

Argentine Republic Government International Bond

  

6.250% due 04/22/2019

    450       470   

Brazil Notas do Tesouro Nacional Bond

  

6.000% due 08/15/2050 (f)

  BRL   50,642       15,730   
       

 

 

 

Total Sovereign Issues (Cost $20,511)

      16,200   
       

 

 

 
        SHARES       MARKET
VALUE
(000S)
 
COMMON STOCKS 0.8%   
CONSUMER DISCRETIONARY 0.0%   

Desarrolladora Homex S.A.B. de C.V. (c)

  719,113   $     69   
       

 

 

 
ENERGY 0.0%   

OGX Petroleo e Gas S.A. SP - ADR

  262,786       0   
       

 

 

 
FINANCIALS 0.0%   

EME Reorganization Trust

    5,207,199       23   

TIG FinCo PLC (i)

    662,196       423   
       

 

 

 
          446   
       

 

 

 
UTILITIES 0.8%   

PPL Corp.

    245,814       9,279   

Talen Energy Corp. (c)

    30,703       416   
       

 

 

 
          9,695   
       

 

 

 

Total Common Stocks (Cost $14,785)

    10,210   
       

 

 

 
PREFERRED SECURITIES 0.2%   
BANKING & FINANCE 0.2%   

AgriBank FCB

       

6.875% due 01/01/2024 (g)

    21,500       2,269   
       

 

 

 

Total Preferred Securities (Cost $2,150)

    2,269   
       

 

 

 
SHORT-TERM INSTRUMENTS 10.3%   
REPURCHASE AGREEMENTS (j) 8.6%   
          104,632   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
         
U.S. TREASURY BILLS 1.7%   

0.162% due 07/21/2016 - 12/08/2016 (d)(e)(m)(o)

  $   21,551       21,548   
       

 

 

 
Total Short-Term Instruments
(Cost $126,180)
      126,180   
       

 

 

 
       
Total Investments in Securities
(Cost $2,156,321)
      2,257,021   
       
Total Investments 184.6%
(Cost $2,156,321)
  $     2,257,021   

Financial Derivative
Instruments (k)(m) (0.6)%

(Cost or Premiums, net $(31,172))

    (7,911
Other Assets and Liabilities, net (84.0)%       (1,026,611
       

 

 

 
Net Assets 100.0%     $       1,222,499   
       

 

 

 
 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) Payment in-kind bond.
(c) Security did not produce income within the last twelve months.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon security.
(f) Principal amount of security is adjusted for inflation.

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   81


Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

(g) Perpetual maturity; date shown, if applicable, represents next contractual call date.
(h) Security is subject to a forbearance agreement entered into by the Fund which forbears the Fund from taking action to, among other things, accelerate and collect payments on the subject note with respect to specified events of default.

 

(i)  RESTRICTED SECURITIES:

 

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

Buffalo Thunder Development Authority 0.000% due 11/15/2029

         12/08/2014      $ 0      $ 1        0.00

KGH Intermediate Holdco LLC 8.500% due 08/08/2019

         08/07/2014        17,075        16,107        1.32   

Pinnacol Assurance 8.625% due 06/25/2034

         06/23/2014        10,200        11,310        0.93   

TIG FinCo PLC

         04/02/2015        982        423        0.03   
        

 

 

   

 

 

   

 

 

 
         $     28,257      $     27,841        2.28
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(j)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 
IND     0.790     06/30/2016        07/01/2016      $     98,100      U.S. Treasury Notes 3.750% due 11/15/2018   $ (100,217   $ 98,100      $ 98,102   
SSB     0.010        06/30/2016        07/01/2016        6,532      U.S. Treasury Notes 2.375% due 12/31/2020     (6,667     6,532        6,532   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

        $     (106,884   $     104,632      $     104,634   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 

BCY

    0.550     11/24/2015        TBD  (2)      $        (2,832   $ (2,842
    1.750        05/16/2016        08/16/2016          (4,418     (4,428
    1.850        06/03/2016        09/06/2016          (8,025     (8,037
    2.129        04/04/2016        07/05/2016          (4,290     (4,290
    2.133        05/09/2016        08/09/2016          (5,432     (5,449
    2.135        04/22/2016        07/22/2016          (19,616     (19,697
    2.154        07/05/2016        10/05/2016          (4,290     (4,312
    2.157        06/09/2016        09/09/2016          (10,225     (10,239
    2.161        06/08/2016        09/08/2016          (7,427     (7,437
    2.174        06/02/2016        09/02/2016          (11,248     (11,268
    2.444        03/24/2015        09/27/2016          (186     (186
    2.486        05/20/2015        11/21/2016          (24,313     (24,382
    2.488        10/23/2015        10/24/2016          (15,516     (15,590
    2.490        03/24/2015        09/26/2016          (1,201     (1,202
    2.490        03/25/2015        09/26/2016          (19,192     (19,200
    2.490        09/25/2015        09/26/2016          (9,386     (9,390
    2.497        09/22/2015        09/22/2016          (1,834     (1,835

BOS

    2.197        06/13/2016        07/13/2016          (12,966     (12,980
    2.265        05/26/2016        08/26/2016          (5,549     (5,562

BPG

    2.342        09/01/2015        09/01/2016              (37,844     (38,592
    2.552        12/11/2015        12/09/2016          (8,286     (8,405
    2.647        01/11/2016        01/11/2017          (3,449     (3,493
    2.731        03/16/2016        03/16/2017          (28,314         (28,544

BPS

    1.288        04/26/2016        07/26/2016          (1,669     (1,673

BRC

    1.650        05/16/2016        08/16/2016          (5,267     (5,278

DBL

    2.807        06/09/2016        09/12/2016          (24,815     (24,858

FOB

    2.195        06/10/2016        07/08/2016          (7,131     (7,140
    2.217        07/01/2016        07/29/2016          (1,013     (1,013
    2.220        06/03/2016        07/01/2016          (1,019     (1,021
    2.380        04/06/2016        07/06/2016          (1,196     (1,203

JML

    0.600        06/13/2016        07/13/2016        EUR        (4,586     (5,091
    1.000        06/15/2016        07/08/2016        $        (2,448     (2,449
    1.250        06/14/2016        07/07/2016          (21,866     (21,879
    1.400        06/15/2016        07/08/2016          (5,264     (5,267

 

82   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

Counterparty   Borrowing
Rate (3)
    Borrowing
Date
    Maturity
Date
   

Amount
Borrowed (3)

    Payable for
Reverse
Repurchase
Agreements
 

JPS

    2.181     06/03/2016        09/06/2016        $        (5,461   $ (5,470
    2.405        05/04/2016        07/13/2016          (9,108     (9,143

MSB

    2.387        05/04/2016        05/01/2017          (15,074     (15,132
    2.388        04/29/2016        05/01/2017          (27,515     (27,630
    2.388        05/02/2016        05/01/2017          (5,460     (5,483
    2.411        09/08/2015        09/08/2016          (77,853     (77,973
    2.412        08/25/2015        08/25/2016          (53,140     (53,272

NOM

    2.187        02/03/2016        08/03/2016          (17,102     (17,163

RBC

    2.010        05/06/2016        11/07/2016          (9,067     (9,095

RCE

    0.350        04/29/2016        07/29/2016        EUR        (6,332     (7,031
    1.438        04/18/2016        07/18/2016        GBP        (10,266     (13,710

RDR

    1.250        03/09/2016        07/14/2016        $        (6,932     (6,959
    1.400        05/10/2016        08/04/2016          (6,657     (6,670
    1.500        01/28/2016        07/28/2016          (4,859     (4,890
    1.500        05/06/2016        11/07/2016          (2,919     (2,926
    1.660        07/15/2015        07/14/2016          (35,692     (36,271
    1.810        07/28/2015        07/27/2016          (10,764     (10,947
    1.970        11/30/2015        11/29/2016          (983     (995

RTA

    1.377        02/11/2016        07/05/2016          (5,849     (5,881
    1.455        05/12/2016        11/14/2016          (1,530     (1,533
    1.720        07/22/2015        07/21/2016          (5,705     (5,799
    1.767        12/29/2015        09/23/2016          (9,226     (9,310
    1.872        11/23/2015        11/22/2016          (18,810     (19,026
    2.059        02/11/2016        02/10/2017          (5,701     (5,747
    2.073        12/28/2015        12/22/2016          (11,912     (12,040
    2.085        12/30/2015        12/22/2016          (10,844     (10,960
    2.208        04/13/2016        04/12/2017          (7,491     (7,527
    2.222        04/07/2016        04/06/2017          (28,555     (28,705
    2.225        04/22/2016        04/21/2017          (1,542     (1,549
    2.225        05/16/2016        05/15/2017          (37,773     (37,880
    2.227        05/12/2016        05/11/2017          (36,432     (36,545
    2.230        04/29/2016        04/27/2017          (8,493     (8,526
    2.244        04/28/2016        04/27/2017          (14,071     (14,127
    2.285        06/10/2016        06/09/2017          (9,683     (9,696
    2.312        05/31/2016        05/30/2017          (7,720     (7,735

SBI

    1.435        04/22/2016        07/22/2016          (2,897     (2,905
    1.580        06/06/2016        09/07/2016          (8,679     (8,689

SOG

    0.251        04/25/2016        07/25/2016        EUR        (2,319     (2,575
    0.334        06/23/2016        09/23/2016              (20,334     (22,567
    1.270        06/01/2016        09/01/2016        $        (6,653     (6,660
    1.290        04/29/2016        07/29/2016          (2,486     (2,492
    2.300        02/05/2016        08/05/2016          (19,896     (20,083
    2.300        02/17/2016        08/17/2016          (11,264     (11,361
    2.375        04/27/2016        10/27/2016          (9,233     (9,273
    2.375        05/09/2016        11/09/2016          (3,999     (4,013
    2.375        05/27/2016        11/28/2016          (17,814     (17,855
    2.375        06/15/2016        12/14/2016          (17,461     (17,479

UBS

    0.540        04/18/2016        07/18/2016        EUR        (17,944     (19,936
    0.850        06/15/2016        09/14/2016        $        (1,084     (1,084
    0.850        06/24/2016        09/14/2016          (285     (285
    1.150        05/18/2016        08/18/2016        GBP        (4,038     (5,383
    1.290        04/28/2016        07/28/2016          (937     (1,250
    1.440        04/28/2016        07/28/2016        $        (1,112     (1,115
    1.530        04/15/2016        07/15/2016          (5,731     (5,750
    2.080        05/09/2016        08/09/2016          (4,152     (4,165
    2.086        04/25/2016        07/25/2016          (2,906     (2,917
    2.292        01/04/2016        07/05/2016          (2,556     (2,585
           

 

 

 

Total Reverse Repurchase Agreements

  

        $     (1,028,000
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended June 30, 2016 was $(1,056,604) at a weighted average interest rate of 1.742%.

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   83


Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of June 30, 2016:

 

(k) Securities with an aggregate market value of $1,369,551 and cash of $7,717 have been pledged as collateral under the terms of the following master agreements as of June 30, 2016.

 

Counterparty  

Repurchase

Agreement
Proceeds
to be
Received

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

Global/Master Repurchase Agreement

            

BCY

  $ 0      $     (149,784   $     0       $     (149,784   $ 194,496      $     44,712   

BOS

    0        (18,542     0         (18,542     25,604        7,062   

BPG

    0        (79,034     0         (79,034     111,343        32,309   

BPS

    0        (1,673     0         (1,673     2,068        395   

BRC

    0        (5,278     0         (5,278     6,753        1,475   

DBL

    0        (24,858     0         (24,858     50,818        25,960   

FOB

    0        (10,377     0         (10,377     12,071        1,694   

IND

        98,102        0        0         98,102            (100,217     (2,115

JML

    0        (34,686     0         (34,686     43,854        9,168   

JPS

    0        (14,613     0         (14,613     19,673        5,060   

MSB

    0        (179,490     0         (179,490     249,118        69,628   

NOM

    0        (17,163     0         (17,163     25,266        8,103   

RBC

    0        (9,095     0         (9,095     11,739        2,644   

RCE

    0        (20,741     0         (20,741     23,549        2,808   

RDR

    0        (69,658     0         (69,658     82,780        13,122   

RTA

    0        (222,586     0             (222,586         298,480            75,894   

SBI

    0        (11,594     0         (11,594     13,639        2,045   

SOG

    0        (114,358     0         (114,358     154,303        39,945   

SSB

    6,532        0        0         6,532        (6,667     (135

UBS

    0        (44,470     0         (44,470     51,316        6,846   
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     104,634      $     (1,028,000   $     0          
 

 

 

   

 

 

   

 

 

        

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. The Fund and Subsidiary are recognized as two separate legal entities. As such, exposure cannot be netted. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

         

Asset-Backed Securities

  $ (1,021   $ (26,395   $ (173,439   $ (71,342   $ (272,197

Corporate Bonds & Notes

    0        (77,624     (31,155     (4,374     (113,153

Non-Agency Mortgage-Backed Securities

    0        (113,268     (191,830     (316,089     (621,187

U.S. Government Agencies

    0        (6,563     (6,671     (2,926     (16,160
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     (1,021   $     (223,850   $     (403,095   $     (394,731   $     (1,022,697
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

  $     (1,022,697
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(5,303) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

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

Pay

 

3-Month USD-LIBOR

    2.000     06/15/2021      $ 128,100      $ 6,335      $ 3,842      $ 0       $ (13

Receive

 

3-Month USD-LIBOR

    4.000        06/20/2022        134,000            (22,940     3,276        61         0   

Pay

 

3-Month USD-LIBOR

    2.250        06/15/2026            309,700        25,220        26,216        0             (678

Receive

 

3-Month USD-LIBOR

    2.750        03/20/2043        76,400        (15,683         (17,214         760         0   

Receive

 

3-Month USD-LIBOR

    3.750        06/18/2044        12,200        (5,345     (5,319     141         0   

Receive

 

3-Month USD-LIBOR

    3.500        12/17/2044        44,200        (16,992     (14,385     511         0   

 

84   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

Receive

 

3-Month USD-LIBOR

    3.250     06/17/2045      $     45,600      $ (14,999   $ (11,269   $ 524       $ 0   

Receive

 

3-Month USD-LIBOR

    2.750        12/16/2045        3,800        (820     (863     42         0   
         

 

 

   

 

 

   

 

 

    

 

 

 
          $ (45,224   $ (15,716   $ 2,039       $ (691
         

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

        $     (45,224   $     (15,716   $     2,039       $     (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 June 30, 2016:

 

(m) Securities with an aggregate market value of $5,837 and cash of $21,993 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of June 30, 2016.

 

    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      $     2,039      $     2,039        $     0      $     0      $     (691)      $     (691)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(n)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
    Currency to
be Delivered
    Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
         Asset     Liability  

BOA

     07/2016      $     65,695      EUR     59,614      $ 462      $ 0   
     07/2016          100,380      GBP     75,445        57        0   
     08/2016      EUR     59,614      $     65,765        0        (459
     08/2016      GBP     75,445          100,407        0        (54

BPS

     07/2016      BRL     50,936          15,869        12        0   
     07/2016      $     14,946      BRL     50,936        911        0   
     08/2016      BRL     50,936      $     14,830        0        (889

CBK

     07/2016          4,662          1,452        1        0   
     07/2016      GBP     809          1,168        91        0   
     07/2016      $     1,370      BRL     4,662        81        0   
     07/2016          889      EUR     789        0        (13
     08/2016      GBP     2,090      $     2,819        35        0   

GLM

     07/2016      EUR     60,202          67,287        478        0   
     07/2016      GBP     3,017          4,388        372        0   

HUS

     07/2016          515          730        44        0   

JPM

     07/2016      BRL     55,598          15,272        0        (2,036
     07/2016      EUR     201          227        4        0   
     07/2016      $     17,321      BRL     55,598        0        (14
     08/2016          1,049      GBP     780        0        (10

MSB

     07/2016      GBP     71,104      $     104,487        9,830        0   
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

  $   12,378      $   (3,475
            

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

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

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
June 30, 2016 (2)
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000     06/20/2021        6.551     $    4,600      $ (1,243   $ 188      $ 0      $ (1,055
BRC  

Petrobras Global Finance BV

    1.000        06/20/2021        6.551        800        (218     35        0        (183
GST  

Petrobras Global Finance BV

    1.000        06/20/2021        6.551        3,631        (1,018     185        0        (833
HUS  

Petrobras Global Finance BV

    1.000        09/20/2020        6.191        240        (34     (12     0        (46
 

Petrobras Global Finance BV

    1.000        06/20/2021        6.551        7,200        (1,968     316        0        (1,652
JPM  

Russia Government International Bond

    1.000        12/20/2020        2.128        1,200        (138     81        0        (57
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (4,619   $     793      $     0      $     (3,826
           

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   85


Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

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

 

Counterparty   Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation
    Swap Agreements,
at Value  (4)
 
              Asset     Liability  
FBF  

ABX.HE.AA.6-2 Index

    0.170%        05/25/2046      $     29,877      $ (26,553   $ 12,217      $ 0      $ (14,336
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

        $     (31,172   $     13,010      $     0      $     (18,162
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 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.

(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 an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

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

(4) 

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

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of June 30, 2016:

 

(o) Securities with an aggregate market value of $19,920 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of June 30, 2016.

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

BOA

  $   519       $   0       $   0       $   519        $   (513   $   0       $ 0      $ (513   $ 6      $ 0      $ 6   

BPS

    923         0         0         923          (889     0           (1,055       (1,944       (1,021       1,232        211   

BRC

    0         0         0         0          0        0         (183     (183     (183     0          (183

CBK

    208         0         0         208          (13     0         0        (13     195        0        195   

DUB

    0         0         0         0          0        0         0        0        0          (1,080       (1,080

FBF

    0         0         0         0          0        0         (14,336     (14,336       (14,336       14,471        135   

GLM

    850         0         0         850          0        0         0        0        850        (770     80   

GST

    0         0         0         0          0        0         (833     (833     (833     982        149   

HUS

    44         0         0         44          0        0         (1,698     (1,698     (1,654     1,721        67   

JPM

    4         0         0         4          (2,060     0         (57     (2,117     (2,113     1,515        (598

MSB

    9,830         0         0         9,830          0        0         0        0        9,830        (8,490     1,340   
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $  12,378       $  0       $  0       $  12,378        $  (3,475   $  0       $  (18,162   $  (21,637      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(5) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC derivatives can only be netted across transactions governed under the same master agreement with the same legal entity. The Fund and Subsidiary are recognized as two separate legal entities. As such, exposure cannot be netted. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting agreements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Consolidated Statements of Assets and Liabilities as of June 30, 2016:

 

    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      $ 2,039      $ 2,039   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $     12,378      $ 0      $ 12,378   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     0      $     0      $ 12,378      $     2,039      $     14,417   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

86   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

June 30, 2016

 

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

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ 691      $ 691   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 3,475      $ 0      $ 3,475   

Swap Agreements

    0        18,162        0        0        0        18,162   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 18,162      $ 0      $ 3,475      $ 0      $     21,637   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     18,162      $     0      $     3,475      $     691      $ 22,328   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Consolidated Statements of Operations for the period ended June 30, 2016:

 

    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      $ 0      $ 0      $ 0      $ 3,245      $ 3,245   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $     20,921      $ 0      $ 20,921   

Swap Agreements

    0        (43     0        0        (376     (419
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (43   $ 0      $ 20,921      $ (376   $ 20,502   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (43   $ 0      $ 20,921      $ 2,869      $ 23,747   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  

     

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0      $ 0      $ 0      $ 0      $ (25,040   $ (25,040
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0      $ 0      $ 0      $ 1,548      $ 0      $ 1,548   

Swap Agreements

    0        (2,195     0        0        53        (2,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (2,195   $ 0      $ 1,548      $ 53      $ (594
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0      $     (2,195   $     0      $ 1,548      $     (24,987   $     (25,634
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of June 30, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Investments in Securities, at Value

  

Bank Loan Obligations

  $ 0      $ 14,210      $ 529      $ 14,739   

Corporate Bonds & Notes

       

Banking & Finance

    0        94,332        36,558        130,890   

Industrials

    0        63,166        10,671        73,837   

Utilities

    0        60,276        0        60,276   

Municipal Bonds & Notes

       

Illinois

    0        1,226        0        1,226   

U.S. Government Agencies

    0        28,934        0        28,934   

U.S. Treasury Obligations

    0        5,802        0        5,802   

Non-Agency Mortgage-Backed Securities

    0            1,200,816            29,243            1,230,059   

Asset-Backed Securities

    0        527,618        28,781        556,399   

Sovereign Issues

    0        16,200        0        16,200   

Common Stocks

       

Consumer Discretionary

    69        0        0        69   

Financials

    23        0        423        446   

Utilities

        9,695        0        0        9,695   

Preferred Securities

       

Banking & Finance

    0        2,269        0        2,269   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
06/30/2016
 

Short-Term Instruments

       

Repurchase Agreements

  $ 0      $ 104,632      $ 0      $ 104,632   

U.S. Treasury Bills

    0        21,548        0        21,548   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 9,787      $ 2,141,029      $ 106,205      $ 2,257,021   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

  

 

Exchange-traded or centrally cleared

    0        2,039        0        2,039   

Over the counter

    0        12,378        0        12,378   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ 14,417      $ 0      $ 14,417   
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

  

 

Exchange-traded or centrally cleared

    0        (691     0        (691

Over the counter

    0        (21,637     0        (21,637
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0      $ (22,328   $ 0      $ (22,328
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     9,787      $     2,133,118      $     106,205      $     2,249,110   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers between Levels 1 and 2 during the period ended June 30, 2016.

 

See Accompanying Notes   ANNUAL REPORT   JUNE 30, 2016   87


Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

June 30, 2016

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended June 30, 2016:

 

Category and Subcategory   Beginning
Balance
at 06/30/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
   

Realized

Gain/(Loss)

    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 06/30/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
06/30/2016 (1)
 

Investments in Securities, at Value

  

                 

Bank Loan Obligations

  $ 725      $ 0      $ 0      $ 2      $ 0      $ (198   $ 0      $ 0      $ 529      $ (198

Corporate Bonds & Notes

                   

Banking & Finance

    36,902        0        (453     98        7        4        0        0        36,558        (14

Industrials

    10,642        0        0        13        0        16        0        0        10,671        16   

Non-Agency Mortgage-Backed Securities

    19,218        5,445        (406     (12     19        363        4,861        (245     29,243        372   

Asset-Backed Securities

    0        12,754        0        (41     0        273        15,795        0        28,781        273   

Common Stocks

                   

Financials

    666        0        0        0        0        (243     0        0        423        (243
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     68,153      $     18,199      $     (859   $     60      $     26      $     215      $     20,656      $     (245   $     106,205      $     206   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 06/30/2016
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

  

        

Bank Loan Obligations

  $ 529         Other Valuation Techniques (2)                   

Corporate Bonds & Notes

  

        

Banking & Finance

    11,310         Proxy Pricing         Base Price         102.67   
    25,248         Reference Instrument         Spread Movement         37 bps-324.53 bps   

Industrials

    10,671         Proxy Pricing         Base Price         100.09   

Non-Agency Mortgage-Backed Securities

    29,243         Proxy Pricing         Base Price         2.00-105.50   

Asset-Backed Securities

    15,550         Indicative Market Quotation         Broker Quote         45.00   
    13,231         Proxy Pricing         Base Price         3.69-115,005.75   

Common Stocks

          

Financials

    423         Other Valuation Techniques (2)                   
 

 

 

          

Total

  $     106,205            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at June 30, 2016 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.

 

88   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Notes to Financial Statements

 

June 30, 2016

 

1. ORGANIZATION

 

PCM Fund, Inc., PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Strategic Income Fund, Inc., PIMCO Dynamic Credit and Mortgage Income Fund (formerly PIMCO Dynamic Credit Income Fund) and PIMCO Dynamic Income Fund (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”). PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Dynamic Credit and Mortgage Income Fund and PIMCO Dynamic Income Fund were organized as Massachusetts business trusts on the dates shown in the table below. PCM Fund, Inc. and PIMCO Strategic Income Fund, Inc. were organized as Maryland corporations 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  

PCM Fund, Inc.

      June 23, 1993   

PIMCO Global StocksPLUS & Income Fund

      February 16, 2005   

PIMCO Income Opportunity Fund

      September 12, 2007   

PIMCO Strategic Income Fund, Inc.

      December 9, 1993   

PIMCO Dynamic Credit and Mortgage Income Fund

      September 27, 2012   

PIMCO Dynamic Income Fund

      January 19, 2011   

 

PCM Fund, Inc. has the authority to issue 300 million shares of $0.001 par value common stock. PIMCO Strategic Income Fund, Inc. has the authority to issue 500 million shares of $0.00001 par value common stock. PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Dynamic Credit and Mortgage Income Fund and PIMCO Dynamic Income Fund have authorized an unlimited number of Common Shares at a par value of $0.00001 per share.

 

Hereinafter, the terms “Trustee” or “Trustees” shall refer to a Director or Directors of applicable Funds.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Each Fund is treated as an investment company under the reporting requirements of U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

(a) Securities Transactions and Investment Income  Securities transactions are recorded as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled 15 days or more after the trade date. Realized gains (losses) from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as a Fund is informed of the ex-dividend date. Interest income, adjusted for the accretion of discounts and amortization of premiums, is recorded on the accrual basis from settlement date, with the exception of securities with a forward starting effective date, where interest income is recorded on the accrual basis from effective date. For convertible securities, premiums attributable to the conversion feature are not amortized. Estimated tax liabilities on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized appreciation (depreciation) on investments on the Statements of Operations, as appropriate. Tax liabilities realized as a result of such security sales are reflected as a component of net realized gain (loss) on investments on the Statements of Operations. Paydown gains (losses) on mortgage-related and other asset-backed securities are recorded as components of interest income on the Statements of Operations. Income or short-term capital gain distributions received from underlying funds are recorded as dividend income. Long-term capital gain distributions received from underlying funds are recorded as realized gains.

 

Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is probable.

 

(b) Cash and Foreign Currency  The functional and reporting currency for the Funds is the U.S. dollar. The market values of foreign securities, currency holdings and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the current exchange rates each business day. Purchases and sales of securities and income and expense items denominated in foreign currencies, if any, are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Funds do not separately report the effects of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and net changes in unrealized appreciation (depreciation) from investments

on the Statements of Operations. The Funds may invest in foreign currency-denominated securities and may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the

 

 

  ANNUAL REPORT   JUNE 30, 2016   89


Notes to Financial Statements (Cont.)

 

currency exchange market at the time or through a forward foreign currency contract (see Note 6, Financial Derivative Instruments). Realized foreign exchange gains (losses) arising from sales of spot foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid are included in net realized gain (loss) on foreign currency transactions on the Statements of Operations. Net unrealized foreign exchange gains (losses) arising from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period are included in net change in unrealized appreciation or depreciation on foreign currency assets and liabilities on the Statements of Operations.

 

(c) Distributions — Common Shares  The Funds intend to declare distributions from net investment income and gains from the sale of portfolio securities and other sources to common shareholders monthly. Net realized capital gains earned by each Fund, if any, will be distributed no less frequently than once each year. A Fund may engage in investment strategies, including the use of derivatives, to, among other things, generate current, distributable income even if such strategies could potentially result in declines in the Fund’s net asset value. A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced a decline in net assets due to, for example, adverse changes in the broad U.S. or non-U.S. equity markets or the Fund’s debt investments, or arising from its use of derivatives. A Fund may enter into opposite sides of interest rate swap and other derivatives for the principal purpose of generating distributable gains on the one side (characterized as ordinary income for tax purposes) that are not part of the Fund’s duration or yield curve management strategies (“paired swap transactions”), and with a substantial possibility that the Fund will experience a corresponding capital loss and decline in net asset value with respect to the opposite side transaction (to the extent it does not have corresponding offsetting capital gains). Consequently, common shareholders may receive distributions and owe tax at a time when their investment in a Fund has declined in value, which tax may be at ordinary income rates, and which may be economically similar to a taxable return of capital. The tax treatment of certain derivatives may be open to different interpretations. Any recharacterization of payments made or received by a Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.

 

Income 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 the Fund’s annual financial statements presented under U.S. GAAP.

 

If a Fund estimates that a portion of one of its dividend distributions may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of record of the estimated composition of such distribution through a Section 19 Notice. To determine the sources of a Fund’s distributions during the reporting period, the Fund references its internal accounting records at the time the distribution is paid and generally bases its projections of the final tax character of those distributions on the tax characteristics of the distribution reflected in its internal accounting records at the time of such payment. If, based on such records, 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, the Fund’s financial statements presented in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. Examples of such differences may include, among others, the treatment of paydowns on mortgage-backed securities purchased at a discount and periodic payments under interest rate swap contracts. Notwithstanding a Fund’s estimates and projections, 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 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. Additionally, given differences in tax and U.S. GAAP treatment of certain distributions, 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 might report that the sources of these 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 composition of distributions. Final determination of a distribution’s tax character will be reported on Form 1099 DIV sent to shareholders each January.

 

Distributions classified as a tax basis return of capital, if any, are reflected on the Statements of Changes in Net Assets and have been recorded to paid in capital. In addition, other amounts have been reclassified between undistributed (overdistributed) net investment income (loss), accumulated undistributed (overdistributed) net realized gains (losses) and/or paid in capital to more appropriately conform financial accounting to tax characterizations of distributions.

 

(d) Statements of Cash Flows  U.S. GAAP requires entities providing financial statements that report both financial position and results of operations to also provide a statement of cash flows for each period for which results of operations are provided, but exempts investment

 

 

90   PIMCO CLOSED-END FUNDS     


 

June 30, 2016

 

companies meeting certain conditions. One of the conditions is that substantially all of the enterprise’s investments were carried at fair value during the period and classified as Level 1 or Level 2 in the fair value hierarchy in accordance with the requirements of U.S. GAAP. Another condition is that the enterprise had little or no debt, based on the average debt outstanding during the period, in relation to average total assets. Funds with certain degrees of borrowing activity, typically through the use of reverse repurchase agreements, sale-buyback transactions or mortgage dollar rolls, have been determined to be at a level requiring a Statement of Cash Flows. Statements of Cash Flows, as applicable, have been prepared using the indirect method which requires net change in net assets resulting from operations to be adjusted to reconcile to net cash flows from operating activities.

 

(e) New Accounting Pronouncements  In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-11 that expanded secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as sales in order to provide financial statement users with information to compare to similar transactions accounted for as secured borrowings. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Funds have adopted the ASU (the PIMCO Income Opportunity Fund adopted the ASU in 2016). The financial statements have been modified to provide enhanced disclosures surrounding secured borrowing transactions. See the Notes to Schedule of Investments for additional details.

 

In August 2014, the FASB issued ASU 2014-15 requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. The ASU is effective prospectively for annual periods ending after December 15, 2016, and interim periods thereafter. At this time, management is evaluating the implications of these changes on the financial statements.

 

In May 2015, the FASB issued ASU 2015-07 which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Management is evaluating the implications of these changes on the financial statements.

 

3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

 

(a) Investment Valuation Policies  The net asset value (“NAV”) of a Fund’s shares is determined by dividing the total value of portfolio investments and other assets attributable to that Fund, less any liabilities, by the total number of shares outstanding of that Fund.

On each day that the New York Stock Exchange (“NYSE”) is open, Fund shares are ordinarily valued as of the close of regular trading (“NYSE Close”). Information that becomes known to the Funds or their agents after the time as of which NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that day. Each Fund reserves the right to change the time as of which its respective NAV is calculated if the Fund closes earlier, or as permitted by the U.S. Securities and Exchange Commission (the “SEC”).

 

For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of official closing prices or the last reported sales prices, or if no sales are reported, based on quotes obtained from established market makers or prices (including evaluated prices) supplied by the Funds’ approved pricing services, quotation reporting systems and other third-party sources (together, “Pricing Services”). The Funds will normally use pricing data for domestic equity securities received shortly after the NYSE Close and do not normally take into account trading, clearances or settlements that take place after the NYSE Close. A foreign (non-U.S.) equity security traded on a foreign exchange or on more than one exchange is typically valued using pricing information from the exchange considered by PIMCO to be the primary exchange. A foreign (non-U.S.) equity security will be valued as of the close of trading on the foreign exchange, or the NYSE Close, if the NYSE Close occurs before the end of trading on the foreign exchange. Domestic and foreign (non-U.S.) fixed income securities, non-exchange traded derivatives, and equity options are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services using data reflecting the earlier closing of the principal markets for those securities. Prices obtained from Pricing Services may be based on, among other things, information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Certain fixed income securities purchased on a delayed-delivery basis are marked to market daily until settlement at the forward settlement date. Exchange-traded options, except equity options, futures and options on futures are valued at the settlement price determined by the relevant exchange. Swap agreements are valued on the basis of bid quotes obtained from brokers and dealers or market-based prices supplied by Pricing Services or other pricing sources. With respect to any portion of a Fund’s assets that are invested in one or more open-end management investment companies (other than exchange-traded funds (“ETFs”)), a Fund’s NAV will be calculated based upon 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 Board of Trustees (the “Board”). Foreign (non-U.S.) equity securities that do not

 

 

  ANNUAL REPORT   JUNE 30, 2016   91


Notes to Financial Statements (Cont.)

 

trade when the NYSE is open are also valued at fair value. With respect to foreign (non-U.S.) equity securities, a Fund may determine the fair value of investments based on information provided by Pricing Services and other third-party vendors, which may recommend fair value or adjustments with reference to other securities, indices or assets. In considering whether fair valuation is required and in determining fair values, a Fund may, among other things, consider significant events (which may be considered to include changes in the value of U.S. securities or securities indices) that occur after the close of the relevant market and before the NYSE Close. A Fund may utilize modeling tools provided by third-party vendors to determine fair values of non-U.S. securities. Foreign (non-U.S.) exchanges may permit trading in foreign (non-U.S.) equity securities on days when a Fund is not open for business, which may result in a Fund’s portfolio investments being affected when shareholders are unable to buy or sell shares.

 

Senior secured floating rate loans for which an active secondary market exists to a reliable degree will be valued at the mean of the last available bid/ask prices in the market for such loans, as provided by a Pricing Service. Senior secured floating rate loans for which an active secondary market does not exist to a reliable degree will be valued at fair value, which is intended to approximate market value. In valuing a senior secured floating rate loan at fair value, the factors considered may include, but are not limited to, the following: (a) the creditworthiness of the borrower and any intermediate participants, (b) the terms of the loan, (c) recent prices in the market for similar loans, if any, and (d) recent prices in the market for instruments of similar quality, rate, period until next interest rate reset and maturity.

 

Investments valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from Pricing Services. As a result, the value of such investments and, in turn, the NAV of a Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that a Fund is not open for business. As a result, to the extent that a Fund holds foreign (non-U.S.) investments, the value of those investments may change at times when shareholders are unable to buy or sell shares and the value of such investments will be reflected in the Fund’s next calculated NAV.

 

Investments for which market quotes or market-based valuations are not readily available are valued at fair value as determined in good faith by the Board or persons acting at their direction. The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated to PIMCO the responsibility for applying the fair valuation

methods. In the event that market quotes or market-based valuations are not readily available, and the security or asset cannot be valued pursuant to a Board approved valuation method, the value of the security or asset will be determined in good faith by the Valuation Oversight Committee of the Board (“Valuation Oversight Committee”), generally based on recommendations provided by the Manager. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, indicative market quotations (“Broker Quotes”), Pricing Services’ prices), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of a Fund’s securities or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available. The Board has delegated to the Manager the responsibility for monitoring significant events that may materially affect the values of a Fund’s securities or assets and for determining whether the value of the applicable securities or assets should be reevaluated in light of such significant events.

 

When a Fund uses fair valuation to determine the value of a portfolio security or other asset for purposes of calculating its NAV, such investments will not be priced on the basis of quotes from the primary market in which they are traded, but rather may be priced by another method that the Board or persons acting at their direction believe reflects fair value. Fair valuation may require subjective determinations about the value of a security. While the Funds’ policy is intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing, the Funds cannot ensure that fair values determined by the Board or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.

 

(b) Fair Value Hierarchy  U.S. GAAP describes fair value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes inputs to valuation methods and requires disclosure of the fair value hierarchy, separately for each major category of assets and liabilities, that segregates fair value measurements into levels (Level 1, 2, or 3). The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Levels 1, 2, and 3 of the fair value hierarchy are defined as follows:

 

n   

Level 1 — Inputs using (unadjusted) quoted prices in active markets or exchanges for identical assets and liabilities.

 

 

92   PIMCO CLOSED-END FUNDS     


 

June 30, 2016

 

 

n   

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.

 

n   

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 between Levels 1 and 2 and transfers into and out of Level 3, if material, are disclosed in the Notes to Schedule of Investments of each respective Fund.

 

For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to realized gain (loss), unrealized appreciation (depreciation), purchases and sales, accrued discounts (premiums), and transfers into and out of the Level 3 category during the period. The end of period timing recognition 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 Schedules of Investments for each respective Fund.

 

(c) Valuation Techniques and the Fair Value Hierarchy

Level 1 and Level 2 trading assets and trading liabilities, at fair value  The valuation methods (or “techniques”) and significant inputs used in determining the fair values of portfolio securities or other assets

and liabilities categorized as Level 1 and Level 2 of the fair value hierarchy are as follows:

 

Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The Pricing Services’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Fixed income securities purchased on a delayed-delivery basis or as a repurchase commitment in a sale-buyback transaction are marked to market daily until settlement at the forward settlement date and are categorized as Level 2 of the fair value hierarchy.

 

Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows and market-based yield spreads for each tranche, and incorporate deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Common stocks, ETFs, exchange-traded notes and financial derivative instruments, such as futures contracts, rights and warrants, or options on futures that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.

 

Investments valued (denominated) in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates (currency spot and forward rates) obtained from Pricing Services. As a result, 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 securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that a Fund is not open for business. Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for

 

 

  ANNUAL REPORT   JUNE 30, 2016   93


Notes to Financial Statements (Cont.)

 

the market movement between the close of the foreign market and the NYSE Close. These securities are valued using Pricing Services that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are also categorized as Level 2 of the fair value hierarchy.

 

Short-term debt instruments (such as commercial paper) having a remaining maturity of 60 days or less may be valued at amortized cost, so long as the amortized cost of such short-term debt instrument is approximately the same as the fair value of the instrument as determined without the use of amortized cost valuation. Prior to July 31, 2015, short-term debt investments having a maturity of 60 days or less and repurchase agreements were generally valued at amortized cost which approximates fair value. Short-term debt instruments having a remaining maturity of 60 days or less are categorized as Level 2 of the fair value hierarchy.

 

Equity exchange-traded options and over the counter financial derivative instruments, such as forward foreign currency contracts, options contracts, or swap agreements, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. Other than swap agreements, which are valued using a broker-dealer bid quotation or on market-based prices provided by Pricing Services or other pricing sources, 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 listed or traded on a multilateral or trade facility platform, such as a registered exchange, are valued at the daily settlement price determined by the respective exchange (if available). For centrally cleared credit default swaps, the clearing facility requires its members to provide actionable price levels across complete term structures. These levels, along with external third-party prices, are used to produce daily settlement prices. These securities are categorized as Level 2 of the fair value hierarchy. Centrally cleared interest rate swaps are valued using a pricing model that references the underlying rates including the overnight index swap rate and London Interbank Offered

Rate (“LIBOR”) forward rate to produce the daily settlement price. 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 algorithm formulas 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 3 of the fair value hierarchy.

 

The validity of the fair value is reviewed by the Manager on a periodic basis and may be amended in accordance with a Fund’s valuation procedures.

 

 

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4. SECURITIES AND OTHER INVESTMENTS

 

(a) Investments in Securities

Inflation-Indexed Bonds  Certain Funds may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted to the rate of inflation. In general, the value of an inflation-indexed security 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. 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-indexed bonds. 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.

 

Loan Participations, Assignments and Originations  Certain Funds may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers. A Fund’s investments in loans may be in the form of direct investments, participations in loans or assignments of all or a portion of loans from third parties or exposure to investments in or originations of loans through investments in a mutual fund or other pooled investment vehicle. A loan is often administered by a bank or other financial institution (the “agent”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. A Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the agent that is selling the loan agreement.

 

In the event of the insolvency of the agent selling a participation, a Fund may be treated as a general creditor of the agent and may not benefit from any set-off between the agent and the borrower. When a Fund purchases assignments from agents it acquires direct rights against the borrowers of the loans. These loans may include participations in bridge loans, which are loans taken out by borrowers for a short period (typically less than one year) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high yield bonds issued for the purpose of acquisitions.

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among others, credit risk, interest rate risk, variable and floating rate securities risk, and risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below-investment grade securities. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans. To the extent that a Fund originates a loan, it may be responsible for all or a substantial portion of the expenses associated with initiating the loan. This may include significant legal and due diligence expenses, which will be indirectly borne by a Fund and its shareholders. A Fund may pay fees and expenses associated with originating a loan, including significant legal and due diligence expenses, irrespective of whether the loan transaction is ultimately consummated or closed.

 

Additionally, because loans are not ordinarily registered with the SEC or any state securities commission or listed on any securities exchange, there is usually less publicly available information about such instruments. In addition, loans may not be considered “securities” for purposes of the anti-fraud provisions under the federal securities laws and, as a result, as a purchaser of these instruments, a Fund may not be entitled to the anti-fraud protections of the federal securities laws. In the course of investing in such instruments, a Fund may come into possession of material nonpublic information and, because of prohibitions on trading in securities of issuers while in possession of such information, the Fund may be unable to enter into a transaction in a publicly-traded security of that issuer when it would otherwise be advantageous for the Fund to do so. Alternatively, a Fund may choose not to receive material nonpublic information about an issuer of such loans, with the result that the Fund may have less information about such issuers than other investors who transact in such assets.

 

The types of loans and related investments in which the Funds may invest include, among others, senior loans, subordinated loans (including second lien loans, B-Notes and mezzanine loans), whole loans, commercial real estate and other commercial loans and structured loans. The Funds may originate loans or acquire direct interests in loans through primary loan distributions and/or in private transactions. In the case of subordinated loans, there may be significant indebtedness ranking ahead of the borrower’s obligation to the holder of such a loan, including in the event of the borrower’s insolvency. Mezzanine loans are typically secured by a pledge of an equity interest in the mortgage borrower that owns the real estate rather than an interest in a mortgage.

 

 

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Notes to Financial Statements (Cont.)

 

 

Investments in loans may include unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate a Fund to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the committed amount may not be utilized by the borrower. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the agent selling the loan agreement and only upon receipt of payments by the agent from the borrower. Because investing in unfunded loan commitments creates a future obligation for a Fund to provide funding to a borrower upon demand in exchange for a fee, the Fund will segregate or earmark liquid assets with the Fund’s custodian in amounts sufficient to satisfy any such future obligations. A Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan. In certain circumstances, a Fund may receive a penalty fee upon the prepayment of a loan by a borrower. Fees earned or paid are recorded as a component of interest income or interest expense, respectively, on the Statements of Operations. As of June 30, 2016, the Funds had no unfunded loan commitments outstanding.

 

Mortgage-Related and Other Asset-Backed Securities  Certain Funds may invest in mortgage-related and other asset-backed securities that directly or indirectly represent a participation in, or are secured by and payable from, loans on real property. Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. These securities typically provide a monthly payment which consists of both principal and interest. Interest may be determined by fixed or adjustable rates. In times of declining interest rates, there is a greater likelihood that a Fund’s higher yielding securities will be pre-paid with the Fund being unable to reinvest the proceeds in an investment with as great a yield. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. The timely payment of principal and interest of certain mortgage-related securities is guaranteed with the full faith and credit of the U.S. Government. Pools created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Many of the risks of

investing in mortgage-related securities secured by commercial mortgage loans (“CMBS”) reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make lease payments, and the ability of a property to attract and retain tenants. These securities may be less liquid and may exhibit greater price volatility than other types of mortgage-related or other asset-backed securities. Other asset-backed securities are created from many types of assets, including without limitation, auto loans, credit card receivables, home equity loans, and student loans.

 

Collateralized Debt Obligations  (“CDOs”) include Collateralized Bond Obligations (“CBOs”), Collateralized Loan Obligations (“CLOs”) and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is typically backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion to CBO or CLO securities as a class. The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. CDOs carry additional risks including, but not limited to, (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments, (ii) the collateral may decline in value or default, (iii) a Fund may invest in CDOs that are subordinate to other classes, and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

Collateralized Mortgage Obligations  (“CMOs”) are debt obligations of a legal entity that are collateralized by whole mortgage loans or private mortgage bonds and divided into classes. CMOs are structured into multiple classes, often referred to as “tranches,” with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. CMOs

 

 

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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” below).

 

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  Certain Funds may invest in payment in-kind securities (“PIKs”). PIKs may give the issuer the option at each interest payment date of making interest payments in either cash or additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statements of Assets and Liabilities.

 

Restricted Securities  Certain Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities may generally be sold privately, but are required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933. Disposal of restricted securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to achieve. Restricted securities held by the Funds at June 30, 2016 are disclosed in the Notes to Schedules of Investments.

 

U.S. Government Agencies or Government-Sponsored Enterprises  Certain Funds may invest in securities of U.S. Government agencies or government-sponsored enterprises. U.S. Government securities are obligations of and, in certain cases, guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), are supported by the full faith and credit of the U.S. Government; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury (the “U.S. Treasury”); and others, such as those of the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations.

 

 

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Notes to Financial Statements (Cont.)

 

 

U.S. Government securities may include zero coupon securities. Zero coupon securities do not distribute interest on a current basis and tend to be subject to a greater risk than interest-paying securities. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). FNMA is a government-sponsored corporation. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Government.

 

Certain Funds may engage in strategies where they seek to extend the expiration or maturity of a position, such as a To Be Announced (“TBA”) security on an underlying asset, by closing out the position before expiration and opening a new position with respect to 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.

 

Warrants  Certain Funds may receive warrants. Warrants are securities that are usually issued together with a debt security or preferred stock and that give the holder the right to buy a proportionate amount of common stock at a specified price. Warrants are freely transferable and are often traded on major exchanges. Warrants normally have a life that is measured in years and entitle the holder to buy common stock of a company at a price that is usually higher than the market price at the time the warrant is issued. Warrants may entail greater risks than certain other types of investments. Generally, warrants do not carry the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. In addition, their value does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or before their expiration date. If the market price of the underlying stock does not exceed the exercise price during the life of the warrant, the warrant will expire worthless. Warrants may increase the potential profit or loss to be realized from the investment as compared with investing the same amount in the underlying securities. Similarly, the percentage increase or decrease in the value of an equity security warrant may be greater than the percentage increase

or decrease in the value of the underlying common stock. Warrants may relate to the purchase of equity or debt securities. Debt obligations with warrants attached to purchase equity securities have many characteristics of convertible securities and their prices may, to some degree, reflect the performance of the underlying stock. Debt obligations also may be issued with warrants attached to purchase additional debt securities at the same coupon rate. A decline in interest rates would permit a Fund to sell such warrants at a profit. If interest rates rise, these warrants would generally expire with no value.

 

5. BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

The following disclosures contain information on a Fund’s ability to lend or borrow cash or securities to the extent permitted under the Act, which may be viewed as borrowing or financing transactions by a Fund. The location of these instruments in each Fund’s financial statements is described below. For a detailed description of credit and counterparty risks that can be associated with borrowings and other financing transactions, please see Note 7, Principal Risks.

 

(a) Repurchase Agreements  Certain Funds may engage in repurchase agreements. Under the terms of a typical repurchase agreement, a Fund purchases an underlying debt obligation (collateral) subject to an obligation of the seller to repurchase, and a Fund to resell, the obligation at an agreed-upon price and time. The underlying securities for all repurchase agreements are held by a Fund’s custodian or designated subcustodians under tri-party repurchase agreements. The market value of the collateral must be equal to or exceed the total amount of the repurchase obligations, including interest. Repurchase agreements, if any, including accrued interest, are included on the Statements of Assets and Liabilities. Interest earned is recorded as a component of interest income on the Statements of Operations. In periods of increased demand for collateral, a Fund may pay a fee for the receipt of collateral, which may result in interest expense to the Fund.

 

(b) Reverse Repurchase Agreements  Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement, a Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. In an open maturity reverse repurchase agreement, there is no pre-determined repurchase date and the agreement can be terminated by the Fund or counterparty at any time. A Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by a Fund to counterparties are reflected as a liability on the Statements of Assets and Liabilities. Interest payments made by a Fund to counterparties are recorded as a component of interest expense on

 

 

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the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities to be repurchased may decline below the repurchase price (see Note 7, Principal Risks).

 

(c) Sale-Buybacks  Certain Funds may enter into financing transactions referred to as ‘sale-buybacks’. A sale-buyback transaction consists of a sale of a security by a Fund to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed-upon price and date. A Fund is not entitled to receive principal and interest payments, if any, made on the security sold to the counterparty during the term of the agreement. The agreed-upon proceeds for securities to be repurchased by a Fund are reflected as a liability on the Statements of Assets and Liabilities. A Fund will recognize net income represented by the price differential between the price received for the transferred security and the agreed-upon repurchase price. This is commonly referred to as the ‘price drop’. A price drop consists of (i) the foregone interest and inflationary income adjustments, if any, a Fund would have otherwise received had the security not been sold and (ii) the negotiated financing terms between a Fund and counterparty. Foregone interest and inflationary income adjustments, if any, are recorded as components of interest income on the Statements of Operations. Interest payments based upon negotiated financing terms made by a Fund to counterparties are recorded as a component of interest expense on the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. Sale-buybacks involve leverage risk and also the risk that the market value of the securities to be repurchased may decline below the repurchase price (see Note 7, Principal Risks).

 

(d) Mortgage Dollar Rolls  Certain Funds may enter into mortgage dollar roll transactions. Mortgage dollar rolls involve a Fund selling securities for delivery in the current month and simultaneously contracting to repurchase substantially similar (same type, same or similar interest rate and maturity) securities on a specified future date. The difference between the selling price and future purchase price is an adjustment to interest income on the Statements of Operations. During the roll period, a Fund forgoes principal and interest paid on the securities. A Fund accounts for rolls as financing transactions. A Fund’s

dollar roll transactions are intended to enhance the Fund’s yield by earning a spread between the yield on the underlying mortgage securities and short-term interest rates. Dollar rolls involve leverage risk and also the risk that the market value of the securities to be repurchased may decline below the repurchase price (see Note 7, Principal Risks).

 

6. FINANCIAL DERIVATIVE INSTRUMENTS

 

The following disclosures contain information on how and why the Funds may use financial derivative instruments, the credit-risk-related contingent features in certain financial derivative instruments and how financial derivative instruments affect the Funds’ financial position, results of operations and cash flows. The location and fair value amounts of these instruments on the Statements of Assets and Liabilities and of the realized appreciation (depreciation) and changes in unrealized appreciation (depreciation) related to such instruments on the Statements of Operations, each categorized by type of financial derivative contract and related risk exposure, are included in a table in the Notes to Schedules of Investments. The financial derivative instruments outstanding as of period end and the amounts of realized and changes in unrealized appreciation (depreciation) on financial derivative instruments during the period, as disclosed in the Notes to Schedules of Investments, serve as indicators of the volume of financial derivative activity for the Funds.

 

PIMCO Global StocksPLUS® & Income 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 Global StocksPLUS® & Income Fund. Compliance with the CFTC’s regulatory requirements could increase PIMCO Global StocksPLUS® & Income Fund’s expenses, adversely affecting its total return.

 

(a) Forward Foreign Currency Contracts  Certain Funds may enter into forward foreign currency contracts in connection with settling planned purchases or sales of securities, to hedge the currency exposure associated with some or all of a Fund’s securities or as a part of an investment strategy. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked to market daily, and the change in value is recorded by a Fund as an unrealized gain (loss).

 

 

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Notes to Financial Statements (Cont.)

 

 

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) Futures Contracts  Certain Funds may enter into futures contracts. A Fund may use futures contracts to manage its exposure to the securities markets or to movements in interest rates and currency values or for other investment purposes. Generally, a futures contract provides for the future sale by one party and purchase by another party of a specified quantity of the security or other financial instrument at a specified price and time. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the securities held by a Fund and the prices of futures contracts and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, a Fund is required to deposit with its futures broker an amount of cash, U.S. Government and Agency Obligations, or select sovereign debt, in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily, and based on changes in the price of the contracts, a Fund pays or receives cash or other eligible assets equal to the daily change in the value of the contract (“variation margin”). Gains (losses) are recognized but not considered realized until the contracts expire or close. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin included within exchange traded or centrally cleared financial derivative instruments on the Statements of Assets and Liabilities.

 

(c) Options Contracts  Certain Funds may write call and put options on securities and financial derivative instruments they own or in which they may invest. 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 as a liability and subsequently marked to market to reflect the current value of the option written. These liabilities 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.

 

Certain Funds may also purchase put and call options. 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.

 

Options on Exchange-Traded Futures Contracts  Certain Funds may write or purchase options on exchange-traded futures contracts (“Futures Options”) to hedge an existing position or future investment, for speculative purposes or to manage exposure to market movements. A Futures Option is an option contract in which the underlying instrument is a single futures contract.

 

Options on Securities  Certain Funds may write or purchase options on securities. An option uses a specified security as the underlying

 

 

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instrument for the option contract. A Fund may write or purchase options to enhance returns or to hedge an existing position or future investment.

 

(d) Swap Agreements  Certain Funds may invest in swap agreements. Swap agreements are bilaterally negotiated agreements between a Fund and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over the counter market (“OTC swaps”) or may be cleared through a third party, known as a central counterparty or derivatives clearing organization (“Centrally Cleared Swaps”). A Fund may enter into asset, credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements to manage its exposure to credit, currency, interest rate, commodity, equity and inflation risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

 

Centrally Cleared Swaps are marked to market daily based upon valuations as determined from the underlying contract or in accordance with the requirements of the central counterparty or derivatives clearing organization. Changes in market value, if any, are reflected as a component of net change in unrealized appreciation (depreciation) on the Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a variation margin on the Statements of Assets and Liabilities. OTC swap payments received or paid at the beginning of the measurement period are included on the Statements of Assets and Liabilities and represent premiums paid or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Upfront premiums received (paid) are initially recorded as liabilities (assets) and subsequently marked to market to reflect the current value of the swap. These upfront premiums are recorded as realized gains (losses) on the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain (loss) on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gains (losses) on the Statements of Operations.

 

For purposes of applying a Fund’s investment policies and restrictions, swap agreements are generally valued by a Fund at market value. In the case of a credit default swap (see below), however, in applying certain of a Fund’s investment policies and restrictions, the Funds will value the credit default swap at its notional value or its full exposure value (i.e., the sum of the notional amount for the contract plus the

market value), but may value the credit default swap at market value for purposes of applying certain of a Fund’s other investment policies and restrictions. For example, a Fund may value credit default swaps at full exposure value for purposes of a Fund’s credit quality guidelines (if any) because such value reflects a Fund’s actual economic exposure during the term of the credit default swap agreement. In this context, both the notional amount and the market value may be positive or negative depending on whether a Fund is selling or buying protection through the credit default swap. The manner in which certain securities or other instruments are valued by a Fund for purposes of applying investment policies and restrictions may differ from the manner in which those investments are valued by other types of investors.

 

Entering into swap agreements involves, to varying degrees, elements of interest, credit, market and documentation risk in excess of the amounts recognized on the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates or 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.

 

Credit Default Swap Agreements  A Fund may use credit default swaps on corporate, loan, sovereign, U.S. municipal or U.S. Treasury issues to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where a Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. Credit default swap agreements involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event that the referenced entity, obligation or index, as specified in the agreement, undergoes a certain credit event. As a seller of protection on credit default swap agreements, a Fund will generally receive from the buyer of protection a fixed rate of income throughout the term of

 

 

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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 asset-backed securities involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. Unlike credit default swaps on corporate loan, U.S. municipal, U.S. Treasury or sovereign issues, deliverable obligations in most instances would be limited to the specific referenced obligation, as performance for asset-backed securities can vary across deals.

Prepayments, principal paydowns, and other writedown or loss events on the underlying mortgage loans will reduce the outstanding principal balance of the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement and the notional amount for the swap agreement will be adjusted by corresponding amounts. A Fund may use credit default swaps on asset-backed securities to provide a measure of protection against defaults of the referenced obligation or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default.

 

Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset-backed securities, emerging markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. Credit default swaps on credit indices may be used to hedge a portfolio of credit default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default. Credit default swaps on indices are instruments often used to attempt to protect investors owning bonds against default, but may also be used for speculative purposes.

 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate, sovereign or U.S. municipal issues as of period end are disclosed in the Notes to Schedules of Investments. They serve as an indicator of the current status of payment/performance risk and represent the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost 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

 

 

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greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/ performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

The maximum potential 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  Certain Funds are subject to interest rate risk exposure in the normal course of pursuing their investment objectives. If a Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, a Fund may enter into interest rate swap agreements. Interest rate swap agreements involve the exchange by a Fund with another party for their respective commitment to pay or receive interest on the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the buyer pays an upfront fee in consideration for the right to early terminate the swap transaction in whole, at zero cost and at a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different segments of money markets.

 

Total Return Swap Agreements  Certain Funds may enter into total return swap agreements 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 reference asset, which may include an underlying equity, index, or bond, 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 less a financing rate, if any. As a receiver, a Fund would receive payments based on any positive total return and would owe payments in the event of a 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 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 of the transactions described above can be viewed as constituting a form of borrowing or financing transaction by a Fund. In such event, a Fund may but is not required to cover its commitment under such transactions by segregating or “earmarking” assets in accordance with procedures adopted by the Board, in which case such transactions will not be considered “senior securities” by the Fund. With respect to forwards, futures contracts, options and swaps that are contractually permitted or required to cash settle (i.e., where physical delivery of the underlying reference asset is not required), a Fund is permitted to segregate or earmark liquid assets equal to the Fund’s daily marked-to-market net obligation under the derivative instrument, if any, rather than the derivative’s full notional value. By segregating or earmarking liquid assets equal to only its net marked-to-market obligation under derivatives that are required to cash settle, a Fund will have the ability to employ leverage to a greater extent than if a Fund were to segregate or earmark liquid assets equal to the full notional value of the derivative.

 

7. PRINCIPAL RISKS

 

In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to such things as changes in the market (market risk) or failure or inability of the other party to a transaction to perform (credit and counterparty risk). See below for a detailed description of select principal risks. For a more comprehensive list of potential risks the Funds may be subject to, please see the Important Information About the Funds.

 

Market Risks  A Fund’s investments in financial derivatives and other financial instruments expose the Fund to various risks such as, but not limited to, interest rate, foreign currency, equity and commodity risks.

 

Interest rate risk is the risk that fixed income securities and other instruments held by a Fund will decline in value because of changes in

 

 

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Notes to Financial Statements (Cont.)

 

interest rates. As nominal interest rates rise, the value of certain fixed income securities held by a Fund is likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Interest rate changes can be sudden and unpredictable, and a Fund may lose money if these changes are not anticipated by Fund management. A Fund may not be able to hedge against changes in interest rates or may choose not to do so for cost or other reasons. In addition, any hedges may not work as intended.

 

Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates that incorporates a security’s yield, coupon, final maturity and call features, among other characteristics. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e. yield) movements. All other things remaining equal, for each one percentage point increase in interest rates, the value of a portfolio of fixed income investments would generally be expected to decline by one percent for every year of the portfolio’s average duration above zero. For example, the value of a portfolio of fixed income securities with an average duration of three years would generally be expected to decline by approximately 3% if interest rates rose by one percentage point. Convexity is an additional measure used to understand a security’s interest rate sensitivity. Convexity measures the rate of change of duration in response to changes in interest rates and may be positive or negative Securities with negative convexity may experience greater losses during periods of rising interest rates, and accordingly Funds holding such securities may be subject to a greater risk of losses in periods of rising interest rates. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). At present, the U.S. is experiencing historically low interest rates. This, combined with recent economic recovery, the Federal Reserve Board’s conclusion of its quantitative easing program, and recent increases in the interest rates for the first time since 2006, could potentially increase the probability of an upward interest rate environment in the near future. During periods of very low or negative interest rates, a Fund may be unable to maintain positive returns. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from Fund performance to the extent a Fund is exposed to such interest rates. Rising interest rates may result in a decline in value of a Fund’s fixed-income investments and in periods of volatility. Further, while U.S. bond markets have steadily grown over the past three decades, dealer “market making” ability has remained relatively stagnant. As a result, dealer inventories of certain types of bonds and similar instruments, which provide a core indication of the ability of financial intermediaries to “make markets,” are at or near historic lows in relation to market size. Because market makers provide stability to a market through their

intermediary services, the significant reduction in dealer inventories could potentially lead to decreased liquidity and increased volatility in the fixed income markets. Such issues may be exacerbated during periods of economic uncertainty. All of these factors, collectively and/or individually, could cause a Fund to lose value.

 

Foreign (non-U.S.) securities in this report are classified by the country of incorporation of a holding. In certain instances, a security’s country of incorporation may be different from its country of economic exposure. If a Fund invests directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies, or in financial derivatives that provide exposure to foreign (non-U.S.) currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, a Fund’s investments in foreign currency denominated securities may reduce the Fund’s returns.

 

The market values of a Fund’s investments may decline due to general market conditions which are not specifically related to a particular company or issuer, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities, although under certain market conditions fixed income securities may have comparable or greater price volatility. Credit ratings downgrades may also negatively affect securities held by a Fund. Even when markets perform well, there is no assurance that the investments held by a Fund will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical events will disrupt the economy on a national or global level.

 

A Fund’s investments in commodity-linked financial derivative instruments may subject the Fund to greater market price volatility than investments in traditional securities. The value of commodity-linked financial derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.

 

 

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Credit and Counterparty Risks  A Fund will be exposed to credit risk to parties with whom it trades and will also bear the risk of settlement default. A Fund seeks to minimize concentrations of credit risk by undertaking transactions with a large number of counterparties on recognized and reputable exchanges, where applicable. Over the counter (“OTC”) derivative transactions are subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally cleared derivative transactions might not be available for OTC derivative transactions. A Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a financial derivatives contract, repurchase agreement or a loan of portfolio securities, is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.

 

Similar to credit risk, a Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which a Fund has unsettled or open transactions will default. PIMCO, as Manager, seeks to minimize counterparty risks to a Fund in a number of ways. Prior to entering into transactions with a new counterparty, the PIMCO Counterparty Risk Committee conducts an extensive credit review of such counterparty and must approve the use of such counterparty. Furthermore, pursuant to the terms of the underlying contract, to the extent that unpaid amounts owed to a Fund exceed a predetermined threshold, such counterparty is required to advance collateral to a Fund in the form of cash or securities equal in value to the unpaid amount owed to the Fund. A Fund may invest such collateral in securities or other instruments and will typically pay interest to the counterparty on the collateral received. If the unpaid amount owed to a Fund subsequently decreases, the Fund would be required to return to the counterparty all or a portion of the collateral previously advanced to the Fund. PIMCO’s attempts to minimize counterparty risk may, however, be unsuccessful.

 

All transactions in listed securities are settled/paid for upon delivery using approved counterparties. The risk of default is considered minimal, as delivery of securities sold is only made once a Fund has received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

 

Master Netting Arrangements  The Funds may be subject to various netting arrangements with select counterparties (“Master Agreements”). Master Agreements govern the terms of certain transactions, and are intended to reduce the counterparty risk associated with relevant transactions by specifying credit protection mechanisms and providing standardization that is intended to improve legal certainty. Each type of Master Agreement governs certain types of transactions. Different types of transactions may be traded out of different legal entities or affiliates of a particular organization, resulting

in the need for multiple agreements with a single counterparty. As the Master Agreements are specific to unique operations of different asset types, they allow a Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single Master Agreement with a counterparty. For financial reporting purposes the Statements of Assets and Liabilities generally present derivative assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting.

 

Master Agreements can also help limit counterparty risk by specifying collateral posting arrangements at pre-arranged exposure levels. Under the Master Agreements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Agreement with a counterparty in a given account exceeds a specified threshold, which typically ranges from zero to $250,000 depending on the counterparty and the type of Master Agreement. United States Treasury Bills and U.S. dollar cash are generally the preferred forms of collateral, although other forms of AAA rated paper or sovereign securities may be used. Securities and cash pledged as collateral are reflected as assets on the Statements of Assets and Liabilities as either a component of Investments at value (securities) or Deposits with counterparty (cash). Cash collateral received is typically not held in a segregated account and as such is reflected as a liability on the Statements of Assets and Liabilities as Deposits from counterparty. The market value of any securities received as collateral is not reflected as a component of NAV. A Fund’s overall exposure to counterparty risk can change substantially within a short period, as it is affected by each transaction subject to the relevant Master Agreement.

 

Master Repurchase Agreements and Global Master Repurchase Agreements (individually and collectively “Master Repo Agreements”) govern repurchase, reverse repurchase, and sale-buyback transactions between the Funds and select counterparties. Master Repo Agreements maintain provisions for, among other things, transaction initiation, income payments, events of default, and maintenance of collateral. The market value of transactions under the Master Repo Agreement, collateral pledged or received, and the net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

 

Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as TBA securities, delayed-delivery or sale-buyback transactions by and 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.

 

 

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Notes to Financial Statements (Cont.)

 

 

Customer Account Agreements and related addenda govern cleared derivatives transactions such as futures, options on futures, and cleared OTC derivatives. Cleared derivatives transactions require posting of initial margin as determined by each relevant clearing agency which is segregated at a broker account registered with the Commodity Futures Trading Commission (“CFTC”), or the applicable regulator. In the United States, counterparty risk may be reduced as creditors of a futures broker do not have a claim to Fund assets in the segregated account. Portability of exposure reduces risk to the Funds. Variation margin, or changes in market value, are exchanged daily, but may not be netted between futures and cleared OTC derivatives unless the parties have agreed to a separate arrangement in respect of portfolio margining. The market value or accumulated unrealized appreciation (depreciation), initial margin posted, and any unsettled variation margin as of period end is disclosed in the Notes to Schedule of Investments.

 

International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”) govern OTC financial derivative transactions entered into by a Fund and select counterparties. ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral posting and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements. In limited circumstances, the ISDA Master Agreement may contain additional provisions that add counterparty protection beyond coverage of existing daily exposure if the counterparty has a decline in credit quality below a predefined level. These amounts, if any, may be segregated with a third-party custodian. The market value of OTC financial derivative instruments, collateral received or pledged, and net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

 

8. BASIS FOR CONSOLIDATION

 

PCILS I LLC and PDILS I LLC (each a “Subsidiary” and, collectively, the “Subsidiaries”), both Delaware LLC exempted companies, were formed as wholly owned subsidiaries acting as investment vehicles for PIMCO Dynamic Credit and Mortgage Income Fund and PIMCO Dynamic Income Fund (for purposes of this section, each a “Fund” and, collectively, the “Funds”), respectively, in order to effect certain investments consistent with each Fund’s objectives and policies in effect from time to time. PIMCO Dynamic Credit and Mortgage Income Fund’s and PIMCO Dynamic Income Fund’s investment portfolios have been consolidated and include the portfolio holdings of each Fund’s respective Subsidiary. Accordingly, the consolidated financial statements for each Fund include the accounts of each Fund’s respective subsidiary. All inter-company transactions and balances have been eliminated. This structure was established so that certain loans could be held by a separate legal entity from the Funds. See the table below for details regarding the structure, incorporation and relationship as of period end of the Subsidiaries (amounts in thousands).

          PIMCO Dynamic
Credit and
Mortgage
Income Fund
    PIMCO Dynamic
Income Fund
 
          PCILS LLC     PDILS I LLC  

Date of Formation

      03/07/2013        03/12/2013   

Consolidated Fund Net Assets

    $ 2,804,003      $ 1,222,499   

Subsidiary % of Consolidated Fund Net Assets

      0        0   

Subsidiary Financial Statement Information

                 

Total assets

    $ 0      $ 0   

Total liabilities

      0        0   

Net assets

    $ 0      $ 0   

Total income

      0        0   

Net investment income (loss)

      (23     (10

Net realized gain (loss)

      0        0   

Net change in unrealized appreciation (depreciation)

      0        0   

Increase (decrease) in net assets resulting from operations

    $ (23   $ (10

 

 

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

 

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, New York Stock Exchange listing and related fees, tax services, valuation services and other services the Funds require for their daily operations.

 

Pursuant to the Agreement, PIMCO receives an annual fee, payable monthly, at the annual rates shown in the table below:

 

Fund Name          Annual
Rate
 

PCM Fund, Inc.

       0.900% (1) 

PIMCO Global StocksPLUS® & Income Fund

       1.105% (2) 

PIMCO Income Opportunity Fund

       1.055% (1) 

PIMCO Strategic Income Fund, Inc.

       0.955% (3) 

PIMCO Dynamic Credit and Mortgage Income Fund

       1.150% (4) 

PIMCO Dynamic Income Fund

       1.150% (4) 

 

(1) 

Management fees calculated based on the Fund’s average daily “total managed assets”. Total managed assets refer to the total assets of each Fund (including assets attributable to any reverse repurchase agreements, borrowings and preferred shares that may be outstanding) minus accrued liabilities (other than liabilities representing reverse repurchase agreements and borrowings).

(2) 

Management fees calculated based on the Fund’s average daily “total managed assets”. Total managed assets refer to the total assets of each Fund (including assets

 

 

106   PIMCO CLOSED-END FUNDS     


 

June 30, 2016

 

  attributable to any preferred shares and borrowings that may be outstanding) minus accrued liabilities (other than liabilities representing borrowings).
(3) 

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).

(4) 

Management fees calculated based on the Fund’s average daily “total managed assets”. Total managed assets includes total assets of the Fund (including assets attributable to any reverse repurchase agreements, dollar rolls, borrowings and preferred shares that may be outstanding) minus accrued liabilities (other than liabilities representing reverse repurchase agreements, dollar rolls and borrowings).

 

(b) Fund Expenses  Each Fund bears other expenses, which may vary and affect the total level of expenses paid by shareholders, such as (i) salaries and other compensation or expenses, including travel expenses of any of the Fund’s executive officers and employees, if any, who are not officers, directors, shareholders, members, partners or employees of PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees, if any, levied against the Fund; (iii) brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund (including, without limitation, fees and expenses of outside legal counsel or third-party consultants retained in connection with reviewing, negotiating and structuring specialized loan and other investments made by the Fund, subject to specific or general authorization by the Fund’s Board); (iv) expenses of the Fund’s securities lending (if any), including any securities lending agent fees, as governed by a separate securities lending agreement; (v) costs, including interest expense, of borrowing money or engaging in other types of leverage financing, including, without limitation, through the use by the Fund of reverse repurchase agreements, tender option bonds, bank borrowings and credit facilities; (vi) costs, including dividend and/or interest expenses and other costs (including, without limitation, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares, commercial paper or other senior securities for the purpose of incurring leverage; (vii) fees and expenses of any underlying funds or other pooled investment vehicles in which the Fund invests; (viii) dividend and interest expenses on short positions taken by the Fund; (ix) fees and expenses, including travel expenses, and fees and expenses of legal counsel retained for their benefit, of Trustees who are not officers, employees, partners, shareholders or members of PIMCO or its subsidiaries or affiliates; (x) extraordinary expenses, including extraordinary legal expenses, that may arise, including expenses incurred in connection with litigation, proceedings, other claims, and the legal obligations of the Fund to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; (xi) organizational and offering expenses of the Fund, including with respect to share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering, and expenses

associated with tender offers and other share repurchases and redemptions; and (xii) expenses of the Fund which are capitalized in accordance with U.S. GAAP.

 

Each of the Trustees of the Funds who is not an “interested person” under Section 2(a)(19) of the Act, (the “Independent Trustees”) also serves as a trustee of a number of other closed-end funds for which PIMCO serves as investment manager (together with the Funds, the “PIMCO Closed-End Funds”), as well as PIMCO Managed Accounts Trust, an open-end investment company with multiple series for which PIMCO serves as investment adviser and administrator (“PMAT” and, together with the PIMCO Closed-End Funds, the “PIMCO-Managed Funds”). In addition, each of the Independent Trustees also serves as a trustee of certain investment companies (together, the “Allianz-Managed Funds”), for which Allianz Global Investors Fund Management (“AGIFM”), an affiliate of PIMCO that served as the investment manager of the PIMCO Managed Funds prior to the close of business on September 5, 2014, serves as investment adviser.

 

Each Independent Trustee currently receives annual compensation of $225,000 for his or her service on the Boards of the PIMCO-Managed Funds, payable quarterly. The Independent Chairman of the Boards receives an additional $75,000 per year, payable quarterly. The Audit Oversight Committee Chairman receives an additional $50,000 annually, payable quarterly. Trustees are also reimbursed for meeting-related expenses.

 

Each Trustee’s compensation for his or her service as a Trustee on the Boards of the PIMCO Managed Funds and other costs in connection with joint meetings of such Funds are allocated among the PIMCO-Managed Funds, as applicable, on the basis of fixed percentages between PMAT and the PIMCO Closed-End Funds. Trustee compensation and other costs will then be further allocated pro rata among the individual PIMCO-Managed Funds within each grouping based on each such PIMCO-Managed Fund’s relative net assets.

 

10. RELATED PARTY TRANSACTIONS

 

The Manager is a related party. Fees payable to this party are disclosed in Note 9 and the accrued related party fee amounts are disclosed on the Statements of Assets and Liabilities.

 

Certain Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the Act. Further, as defined under the procedures, each transaction is effected at the current market price.

 

 

  ANNUAL REPORT   JUNE 30, 2016   107


Notes to Financial Statements (Cont.)

 

During the period ended June 30, 2016, as indicated below, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act (amounts in thousands):

 

Fund Name         Purchases     Sales  

PCM Fund, Inc.

    $ 1,014      $ 4,974   

PIMCO Global StocksPLUS® & Income Fund

      3,529        18,021   

PIMCO Income Opportunity Fund

      10,131        22,124   

PIMCO Strategic Income Fund, Inc.

      2,535        22,578   

PIMCO Dynamic Credit and Mortgage Income Fund

      76,616          672,880   

PIMCO Dynamic Income Fund

        36,266        76,112   

 

11. GUARANTEES AND INDEMNIFICATIONS

 

Under the organizational documents of PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Dynamic Credit and Mortgage Income Fund and PIMCO Dynamic Income Fund 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. Under the organizational documents of PCM Fund, Inc., and PIMCO Strategic Income Fund, Inc., each Director and officer is indemnified to the fullest extent permitted by Maryland law and the Act. For PCM Fund, Inc., employees and agents of the Fund are also indemnified to the maximum extent permitted by Maryland Law and the Act. For PIMCO Strategic Income Fund, Inc., employees and agents of the Fund may be indemnified to the extent determined by the Board and subject to the limitations of the Act. 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 involves correspondingly greater transaction costs to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in realization of taxable capital gains, including short-term capital gains (which are generally taxed at ordinary income tax rates). The transaction costs and tax effects associated with portfolio turnover may adversely affect a Fund’s performance. The portfolio turnover rates are reported in the Financial Highlights.

 

Purchases and sales of securities (excluding short-term investments) for the period ended June 30, 2016, as indicated below, were as follows (amounts in thousands):

 

          U S Government/Agency     All Other  
Fund Name         Purchases     Sales     Purchases     Sales  

PCM Fund, Inc.

    $ 0      $ 0      $ 34,839      $ 23,676   

PIMCO Global StocksPLUS® & Income Fund

      0        0        41,511        39,135   

PIMCO Income Opportunity Fund

      3,999        3,597        83,080        100,464   

PIMCO Strategic Income Fund, Inc.

        275,244          276,160        52,906        68,801   

PIMCO Dynamic Credit and Mortgage Income Fund

      64,119        72,049          1,632,063          1,186,415   

PIMCO Dynamic Income Fund

      23,704        20,557        446,241        267,078   
         

 

 

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

 

13. REGULATORY AND LITIGATION MATTERS

 

The Funds are not named as defendants in any material litigation or arbitration proceedings and are not aware of any material litigation or claim pending or threatened against them.

 

PIMCO has received a Wells Notice from the staff of the SEC that relates to the PIMCO Total Return Active Exchange-Traded Fund (“BOND”), a series of PIMCO ETF Trust. The notice indicates the staff’s preliminary determination to recommend that the SEC commence a civil action against PIMCO stemming from a non-public investigation relating to BOND. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any law was violated.

 

This matter principally pertains to the valuation of smaller sized positions in non-agency mortgage-backed securities purchased by BOND between its inception on February 29, 2012 and June 30, 2012, BOND’s performance disclosures for that period, and PIMCO’s compliance policies and procedures related to these matters.

 

The Wells process provides PIMCO with the opportunity to demonstrate to the SEC staff why it believes its conduct was appropriate, in keeping with industry standards, and that no action should be taken. PIMCO believes that this matter is unlikely to have a material adverse effect on any Fund or on PIMCO’s ability to provide investment management services to any Fund.

 

 

108   PIMCO CLOSED-END FUNDS     


 

June 30, 2016

 

The foregoing speaks only as of the date of this report.

 

14. FEDERAL INCOME TAX MATTERS

 

Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code (the “Code”) and distribute all of its taxable income and net realized gains, if applicable, to shareholders. Accordingly, no provision for Federal income taxes has been made.

 

The Funds may be subject to local withholding taxes, including those imposed on realized capital gains. Any applicable foreign capital gains tax is accrued daily based upon net unrealized gains, and may be payable following the sale of any applicable investments.

In accordance with U.S. GAAP, the Manager has reviewed the Funds’ tax positions for all open tax years. As of June 30, 2016, 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.

 

Each Fund files U.S. tax returns. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for the fiscal years from 2013-2015, no examinations are in progress or anticipated at this time. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

 

As of June 30, 2016, 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)
 

PCM Fund Inc.

    $ 5,922      $ 0      $ (2,629   $ (923   $ (15,170   $ (695   $ 0   

PIMCO Global StocksPlus® & Income Fund

      0        0        10,488        (2,016     (136,721     0          0   

PIMCO Income Opportunity Fund

      863        0        3,317        (2,863     0        (6,324     0   

PIMCO Strategic Income Fund, Inc.

      2,503        0        16,746        (3,369     (51,455     0        0   

PIMCO Dynamic Credit and Mortgage Income Fund

      79,337        0          (297,892       (22,678       (228,991     0        0   

PIMCO Dynamic Income Fund

        53,910          0        88,840        (10,148     0          (11,493     0   

 

 

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 futures, options and forward contracts for federal income tax purposes. Also adjusted for differences between book and tax realized and unrealized gain/loss on swap contracts, market discount and premium amortization, sale of corporate actions, interest-only basis adjustments, sale/buyback transactions, and Lehman securities.

(3) 

Represents differences in income tax regulations and financial accounting principles generally accepted in the United States of America, mainly for straddle loss deferrals and 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, 2015 through June 30, 2016 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, 2015 through June 30, 2016 and Ordinary losses realized during the period January 1, 2016 through June 30, 2016, which the Funds elected to defer to the following taxable year pursuant to income tax regulations.

 

As of June 30, 2016, the Funds had accumulated capital losses expiring in the following years (amounts in thousands†):

 

The Funds will resume capital gain distributions in the future to the extent gains are realized in excess of accumulated capital losses.

 

           Expiration of Accumulated Capital Losses  
           6/30/2017      6/30/2018      6/30/2019  

PCM Fund Inc.

     $ 13,751       $ 1,419       $ 0   

PIMCO Global StocksPlus® & Income Fund

         89,083           5,575           0   

PIMCO Income Opportunity Fund

       0         0         0   

PIMCO Strategic Income Fund, Inc.

       13,338         0         0   

PIMCO Dynamic Credit and Mortgage Income Fund

       0         0         0   

PIMCO Dynamic Income Fund

       0         0         0   

 

 

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

 

Under the Regulated Investment Company 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.

 

  ANNUAL REPORT   JUNE 30, 2016   109


Notes to Financial Statements (Cont.)

 

 

As of June 30, 2016, the Funds had the following post-effective capital losses with no expiration (amounts in thousands):

 

           Short-Term      Long-Term  

PCM Fund Inc.

     $ 0       $ 0   

PIMCO Global StocksPlus® & Income Fund

       42,063         0   

PIMCO Income Opportunity Fund

       0         0   

PIMCO Strategic Income Fund, Inc.

       37,613         504   

PIMCO Dynamic Credit and Mortgage Income Fund

         190,657           38,334   

PIMCO Dynamic Income Fund

       0         0   

 

 

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

 

As of June 30, 2016, 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)
 

PCM Fund Inc.

     $ 195,759       $ 12,749       $ (15,498    $ (2,749

PIMCO Global StocksPlus® & Income Fund

       158,396         17,835         (11,618      6,217   

PIMCO Income Opportunity Fund

       552,625         48,246         (43,106      5,140   

PIMCO Strategic Income Fund, Inc.

       822,497         36,129         (9,733      26,396   

PIMCO Dynamic Credit and Mortgage Income Fund

         5,390,313           104,722           (439,571        (334,849

PIMCO Dynamic Income Fund

       2,157,902         217,345         (118,226      99,119   

 

 

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, market discount and premium amortization, interest-only basis adjustments, sale/buyback transactions, convertible preferred securities, sale of corporate actions, and Lehman securities for federal income tax purposes.

 

For the fiscal years ended June 30, 2016 and each Fund’s respective previous fiscal year ends, the Funds made the following tax basis distributions (amounts in thousands):

 

          Year Ended June 30, 2016     Period from January 1, 2015 to June 30, 2015     Year Ended December 31, 2014  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PCM Fund, Inc.

    $ 11,077      $ 0      $ 0      $ 5,537      $ 0      $ 0      $ 12,094      $ 0      $ 0   
                   
          Year Ended June 30, 2016     Period from April 1, 2015 to June 30, 2015     Year Ended March 31, 2015  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PIMCO Global StocksPLUS® & Income Fund

    $ 21,340      $ 0      $ 1,918      $ 5,782      $ 0      $ 0      $ 23,021      $ 0      $ 0   
                   
          Year Ended June 30, 2016     Period from November 1, 2014 to
June 30, 2015
    Year Ended October 31, 2014  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PIMCO Income Opportunity Fund

    $ 34,171      $ 7,592      $ 0      $ 34,865      $ 11,498      $ 224      $ 42,972      $ 0      $ 0   
                   
          Year Ended June 30, 2016     Period from February 1, 2015 to June 30, 2015     Year Ended January 31, 2015  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PIMCO Strategic Income Fund, Inc.

    $ 41,907      $ 0      $ 0      $ 16,651      $ 0      $ 0      $ 42,226      $ 0      $ 0   
                   
          Year Ended June 30, 2016     Period from January 1, 2015 to June 30, 2015     Year Ended December 31, 2014  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PIMCO Dynamic Credit and Mortgage Income Fund

    $ 299,572      $ 0      $ 0      $ 128,645      $ 0      $ 0      $ 336,546      $ 2,940      $ 0   
                   

 

110   PIMCO CLOSED-END FUNDS     


 

June 30, 2016

 

          Year Ended June 30, 2016     Period from April 1, 2015 to June 30, 2015     Year Ended March 31, 2015  
          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)
    Ordinary
Income
Distributions (8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital (9)
 

PIMCO Dynamic Income Fund

    $ 200,209      $ 38,491      $ 0      $ 28,651      $ 0      $ 0      $ 187,696      $ 0      $ 0   
                   

 

 

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

(8) 

Includes short-term capital gains distributed, if any.

(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.

 

15. SUBSEQUENT EVENTS

 

In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

On July 1, 2016, the following distributions were declared to common shareholders payable August 1, 2016 to shareholders of record on July 11, 2016:

 

PCM Fund, Inc.

    $   0.080000 per common share   

PIMCO Global StocksPLUS® & Income Fund

    $ 0.183350 per common share   

PIMCO Income Opportunity Fund

    $ 0.190000 per common share   

PIMCO Strategic Income Fund, Inc.

    $ 0.080000 per common share   

PIMCO Dynamic Credit and Mortgage Income Fund

    $ 0.164063 per common share   

PIMCO Dynamic Income Fund

    $ 0.220500 per common share   

 

On August 1, 2016, the following distributions were declared to common shareholders payable September 1, 2016 to shareholders of record on August 11, 2016:

 

PCM Fund, Inc.

    $   0.080000 per common share   

PIMCO Global StocksPLUS® & Income Fund

    $   0.183350 per common share   

PIMCO Income Opportunity Fund

    $   0.190000 per common share   

PIMCO Strategic Income Fund, Inc.

    $   0.080000 per common share   

PIMCO Dynamic Credit and Mortgage Income Fund

    $   0.164063 per common share   

PIMCO Dynamic Income Fund

    $   0.220500 per common share   

 

Effective July 29, 2016, PIMCO Dynamic Credit Income Fund changed its name to PIMCO Dynamic Credit and Mortgage Income Fund. The New York Stock Exchange ticker symbol for PIMCO Dynamic Credit and Mortgage Income Fund’s common shares (PCI) will remain the same.

 

There were no other subsequent events identified that require recognition or disclosure.

 

  ANNUAL REPORT   JUNE 30, 2016   111


Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors/Trustees of PCM Fund, Inc., PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Strategic Income Fund, Inc., PIMCO Dynamic Credit and Mortgage Income Fund (formerly PIMCO Dynamic Credit Income Fund) and PIMCO Dynamic Income Fund

 

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations, of changes in net assets, and of cash flows and the financial highlights present fairly, in all material respects, the financial position of PCM Fund, Inc., PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Strategic Income Fund, Inc., PIMCO Dynamic Credit and Mortgage Income Fund (formerly PIMCO Dynamic Credit Income Fund), and PIMCO Dynamic Income Fund (hereafter referred to as the “Funds”) at June 30, 2016, the results of each of their operations and the cash flows for the year then ended, the changes in each of their net assets and the financial highlights of the Funds for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements (consolidated financial statements for PIMCO Dynamic Credit and Mortgage Income Fund (formerly PIMCO Dynamic Credit Income Fund) and PIMCO Dynamic Income Fund) and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

 

PricewaterhouseCoopers LLP

Kansas City, Missouri

 

August 25, 2016

 

112   PIMCO CLOSED-END FUNDS     


Glossary: (abbreviations that may be used in the preceding statements)

 

(Unaudited)

 

Counterparty Abbreviations:

AZD  

Australia and New Zealand Banking Group

  GSC  

Goldman Sachs & Co.

  RBC  

Royal Bank of Canada

BCY  

Barclays Capital, Inc.

  GST  

Goldman Sachs International

  RCE  

Royal Bank of Canada Europe Limited

BOA  

Bank of America N.A.

  HUS  

HSBC Bank USA N.A.

  RDR  

RBC Capital Markets

BOS  

Banc of America Securities LLC

  IND  

Crédit Agricole Corporate and Investment Bank S.A.

  RTA  

Royal Bank of Canada

BPG  

BNP Paribas Securities Corp.

  JML  

JPMorgan Securities PLC

  RYL  

Royal Bank of Scotland Group PLC

BPS  

BNP Paribas S.A.

  JPM  

JPMorgan Chase Bank N.A.

  SAL  

Citigroup Global Markets, Inc.

BRC  

Barclays Bank PLC

  JPS  

JPMorgan Securities, Inc.

  SBI  

Citigroup Global Markets Ltd.

BSN  

Bank of Nova Scotia

  MBC  

HSBC Bank PLC

  SCX  

Standard Chartered Bank

CBK  

Citibank N.A.

  MSB  

Morgan Stanley Bank N.A.

  SOG  

Societe Generale

DBL  

Deutsche Bank AG London

  MSC  

Morgan Stanley & Co., Inc.

  SSB  

State Street Bank and Trust Co.

DEU  

Deutsche Bank Securities, Inc.

  MYC  

Morgan Stanley Capital Services, Inc.

  TDM  

TD Securities (USA) LLC

DUB  

Deutsche Bank AG

  MYI  

Morgan Stanley & Co. International PLC

  UAG  

UBS AG Stamford

FBF  

Credit Suisse International

  NAB  

National Australia Bank Ltd.

  UBS  

UBS Securities LLC

FOB  

Credit Suisse Securities (USA) LLC

  NOM  

Nomura Securities International Inc.

  WFS  

Wells Fargo Securities, LLC

GLM  

Goldman Sachs Bank USA

       

Currency Abbreviations:

AUD  

Australian Dollar

  EUR  

Euro

  NOK  

Norwegian Krone

BRL  

Brazilian Real

  GBP  

British Pound

  SEK  

Swedish Krona

CAD  

Canadian Dollar

  HKD  

Hong Kong Dollar

  SGD  

Singapore Dollar

CHF  

Swiss Franc

  ILS  

Israeli Shekel

  USD (or
$)
 

United States Dollar

DKK  

Danish Krone

  JPY  

Japanese Yen

   

Exchange Abbreviations:

CME  

Chicago Mercantile Exchange

  OTC  

Over the Counter

   

Index/Spread Abbreviations:

ABX.HE  

Asset-Backed Securities Index - Home Equity

  CPI  

Consumer Price Index

  PENAAA  

Penultimate AAA Sub-Index

CDX.HY  

Credit Derivatives Index - High Yield

  NDDUEAFE  

MSCI EAFE Index

   

Other Abbreviations:

ABS  

Asset-Backed Security

  CDI  

Brazil Interbank Deposit Rate

  LIBOR  

London Interbank Offered Rate

ALT  

Alternate Loan Trust

  CDO  

Collateralized Debt Obligation

  PIK  

Payment-in-Kind

BBR  

Bank Bill Rate

  CLO  

Collateralized Loan Obligation

  REMIC  

Real Estate Mortgage Investment Conduit

BBSW  

Bank Bill Swap Reference Rate

  JSC  

Joint Stock Company

  SP -
ADR
 

Sponsored American Depositary Receipt

 

  ANNUAL REPORT   JUNE 30, 2016   113


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 2016 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 “Act”), the following percentage of ordinary dividends paid during the calendar year was designated as “qualified dividend income”, as defined in the Act, subject to reduced tax rates in 2016:

 

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 June 30, 2016 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 June 30, 2016 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)
 

PCM Fund Inc.

        0.00%         0.04%       $ 9,247       $ 0   

PIMCO Global StocksPlus® & Income Fund

        0.00%         0.11%         7,995         0   

PIMCO Income Opportunity Fund

        0.00%         3.46%         15,358         0   

PIMCO Strategic Income Fund, Inc.

        0.00%         0.03%         17,606         0   

PIMCO Dynamic Credit and Mortgage Income Fund

        0.00%         0.00%             108,894             6,367   

PIMCO Dynamic Income Fund

        0.00%         0.31%         66,675         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 2017, 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 2016.

 

114   PIMCO CLOSED-END FUNDS     


Shareholder Meeting Results

 

(Unaudited)

 

Annual Shareholder Meeting Results

 

PCM Fund, Inc., PIMCO Income Opportunity Fund and PIMCO Dynamic Credit and Mortgage Income Fund (formerly, PIMCO Dynamic Credit Income Fund) held their annual meetings of shareholders on April 29, 2016. Shareholders voted as indicated below:

 

PIMCO Income Opportunity Fund          Affirmative      Withheld
Authority
 

Re-election of John C. Maney† — Class II to serve until the annual Meeting held during the 2018-2019 fiscal year

       13,004,444         333,975   

Re-election of James A. Jacobson — Class II to serve until the annual Meeting held during the 2018-2019 fiscal year

       13,000,204         338,215   

 

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Bradford K. Gallagher, Hans W. Kertess, William B. Ogden, IV, Alan Rappaport and Craig A. Dawson continued to serve as Trustees of the Fund.

 

Interested Trustee

 

PCM Fund, Inc.          Affirmative      Withheld
Authority
 

Election of James A. Jacobson — Class I to serve until the annual meeting held during the 2018-2019 fiscal year

       9,705,740         384,617   

Re-election of William B. Ogden, IV — Class I to serve until the annual Meeting held during the 2018-2019 fiscal year

       9,704,635         385,722   

 

The other members of the Board of Directors at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Hans W. Kertess, Bradford K. Gallagher, Alan Rappaport, John C. Maney and Craig A. Dawson continued to serve as Directors of the Fund.

 

PIMCO Dynamic Credit and Mortgage Income Fund (formerly, PIMCO Dynamic Credit Income Fund)          Affirmative      Withheld
Authority
 

Re-election of Deborah A. DeCotis — Class III to serve until the annual Meeting held during the 2018-2019 fiscal year

       110,435,932         5,125,445   

Re-election of John C. Maney† — Class III to serve until the annual Meeting held during the 2018-2019 fiscal year

       110,502,230         5,059,148   

 

The other members of the Board of Trustees at the time of the meeting, namely, Messrs. Hans W. Kertess, Bradford K. Gallagher, James A. Jacobson, William B. Ogden, IV, Alan Rappaport and Craig A. Dawson continued to serve as Trustees of the Fund.

 

Interested Trustee

 

Annual Shareholder Meeting Results

 

PIMCO Strategic Income Fund, Inc., PIMCO Global StocksPLUS & Income Fund and PIMCO Dynamic Income Fund held their annual meetings of shareholders on June 30, 2016. Shareholders voted as indicated below.

 

PIMCO Global StocksPLUS & Income Fund          Affirmative      Withheld
Authority
 

Re-election of Deborah A. DeCotis — Class II to serve until the annual meeting held during the 2018-2019 fiscal year

       9,056,878         439,609   

Re-election of Bradford K. Gallagher — Class II to serve until the annual meeting held during the 2018-2019 fiscal year

       9,071,898         424,589   

Re-election of James A. Jacobson — Class II to serve until the annual Meeting held during the 2018-2019 fiscal year

       9,069,901         426,586   

 

The other members of the Board of Trustees at the time of the meeting, namely, Messrs. Hans W. Kertess, William B. Ogden, IV, Alan Rappaport, Craig Dawson and John C. Maney continued to serve as Trustees of the Fund.

 

PIMCO Dynamic Income Fund          Affirmative      Withheld
Authority
 

Re-election of Hans W. Kertess — Class II to serve until the annual meeting held during the 2018-2019 fiscal year

       38,194,168         782,953   

Re-election of Alan Rappaport — Class II to serve until the annual meeting held during the 2018-2019 fiscal year

       38,179,416         797,705   

Re-election of William B. Ogden, IV — Class II to serve until the annual Meeting held during the 2018-2019 fiscal year

       38,189,426         787,695   

 

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Bradford K. Gallagher, James A. Jacobson, John C. Maney and Craig A. Dawson continued to serve as Trustees of the Fund.

 

PIMCO Strategic Income Fund, Inc.          Affirmative      Withheld
Authority
 

Re-election of James A. Jacobson — Class I to serve until the annual Meeting held during the 2018-2019 fiscal year

       35,044,079         1,720,191   

Re-election of William B. Ogden, IV — Class I to serve until the annual Meeting held during the 2018-2019 fiscal year

       35,046,352         1,717,918   

 

The other members of the Board of Directors at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Hans W. Kertess, Bradford K. Gallagher, Alan Rappaport, Craig A. Dawson and John C. Maney continued to serve as Directors of the Fund.

 

  ANNUAL REPORT   JUNE 30, 2016   115


Investment Strategy Updates

 

Effective October 6, 2015, each Fund adopted the following non-fundamental investment policy:

 

The staff of the SEC has taken the position that purchased OTC options and the assets used as cover for written OTC options should generally be treated as illiquid. However, the staff of the SEC has also taken the position that the determination of whether a particular instrument is liquid should be made under guidelines and standards established by a fund’s board of trustees/directors. The SEC staff has provided examples of factors that may be taken into account in determining whether a particular instrument should be treated as liquid. Pursuant to policies adopted by the Fund’s Board of Trustees, purchased OTC options and the assets used as cover for OTC options written by a Fund may be treated as liquid under certain circumstances, such as when PIMCO has the contractual right to terminate or close out the OTC option on behalf of a Fund within seven days. These policies are not fundamental policies of the Funds and may be changed or modified by the Board of Trustees without the approval of shareholders, provided that any such change or modification will be consistent with applicable positions of the SEC staff.

 

Effective April 22, 2016, PIMCO Dynamic Credit and Mortgage Income Fund (formerly, PIMCO Dynamic Credit Income Fund) (hereinafter, the “Fund”) rescinded the following non-fundamental policy:

 

The Fund will normally invest at least 50% of its net assets in corporate income-producing securities of varying maturities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers.

 

Effective July 29, 2016, the Fund changed its name to PIMCO Dynamic Credit and Mortgage Income Fund. In connection with the name change, the Fund rescinded the following non-fundamental investment policy (the “Former Policy”):

 

The Fund will normally invest at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of debt instruments of varying maturities (the “80% policy”).

 

For purposes of the 80% policy, debt instruments may include, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; mortgage-related and any other type of asset-backed securities issued on a public or private basis; U.S. Government securities; 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); payment-in-kind securities; zero-coupon 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; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); preferred securities; 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 bank certificates of deposit, fixed time deposits and bankers’ acceptances. The rate of interest on an income-producing security may be fixed, floating or variable. 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 debt securities of stressed issuers. The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to debt instruments will be counted toward satisfaction of this 80% policy.

 

The Former Policy was replaced in its entirety with the following new non-fundamental investment policy (the “New Policy”):

 

The Fund will normally invest at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of mortgage-related securities and other debt instruments of varying maturities (the “80% policy”). For purposes of the 80% policy, mortgage-related securities may include, without limitation, 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.

 

For purposes of the 80% policy, other debt instruments may include, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; asset-backed securities issued on a public or private basis; U.S. Government securities; 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); payment-in-kind securities; zero-coupon bonds; inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe

 

 

116   PIMCO CLOSED-END FUNDS     


(Unaudited)

 

bonds and other event-linked bonds; credit-linked notes; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); preferred securities; 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 bank certificates of deposit, fixed time deposits and bankers’ acceptances. The rate of interest on an income-producing security may be fixed, floating or variable. 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 debt securities of stressed issuers. The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to mortgage-related securities or other debt instruments will be counted toward satisfaction of this 80% policy.

 

The New Policy became effective on July 29, 2016 and may only be changed by the Board of Trustees of the Fund after providing at least 60 days’ written notice to the Fund’s shareholders pursuant to Rule 35d-1 under the Investment Company Act of 1940, as amended.

 

The following risks are associated with the policies described above:

 

To the extent that the Fund has increased exposure to certain asset classes other than corporate income-producing securities, such as mortgage-related securities, as a result of the investment policy changes described above, the Fund may be exposed to increased risks associated with such asset classes.

 

 

  ANNUAL REPORT   JUNE 30, 2016   117


Dividend Reinvestment Plan

 

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.amstock.com, by calling (844) 33PIMCO (844-337-4626), 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 shares of each Fund (“NAV”) is equal to or less than the market price per common shares 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

 

 

118   PIMCO CLOSED-END FUNDS     


(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 (844-337-4626); website: www.amstock.com.

 

 

  ANNUAL REPORT   JUNE 30, 2016   119


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.

 

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/Director

Hans W. Kertess

1939

 

Chairman of the

Board, Trustee/Director

  Director of PCM and RCS since 2008, Trustee of PCI since 2013, Trustee of PGP since 2005, Trustee of PKO since 2007 and Trustee of PDI since 2012, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for PCM, PCI and RCS, the 2017-2018 fiscal year for PKO and PGP and the 2018-2019 fiscal year for PDI.   President, H. Kertess & Co., a financial advisory company. Senior Adviser, Royal Bank of Canada Capital Markets. Formerly, Managing Director and Consultant, Royal Bank of Canada Capital Markets.   90    None

Deborah A. DeCotis

1952

  Trustee/Director   Trustee/Director of RCS, PGP, PCM and PKO since 2011, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for re-election at the annual meeting of shareholders held during the 2017-2018 fiscal year for PCM, PKO, RCS and PDI and the 2018-2019 fiscal year for PCI and PGP.   Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); and Member, Council on Foreign Relations (since 2013). 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).   90    None

Bradford K. Gallagher

1944

  Trustee/Director   Trustee/Director of RCS, PCM, PGP and PKO since 2010, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for RCS, PKO, PDI and PCM, the 2017-2018 fiscal year for PCI and the 2018-2019 fiscal year for PGP.   Retired. Founder, Spyglass Investments LLC, a private investment vehicle (since 2001). Formerly, Chairman and Trustee, The Common Fund (2005-2014); Partner, New Technology Ventures Capital Management LLC, a venture capital fund (2011-2013); Chairman and Trustee, Atlantic Maritime Heritage Foundation (2007-2012); and Founder, President and CEO, Cypress Holding Company and Cypress Tree Investment Management Company (1995-2001).   90    Formerly, Chairman and Trustee of Grail Advisors ETF Trust (2009- 2010); and Trustee of Nicholas- Applegate Institutional Funds (2007-2010).

James A. Jacobson

1945

  Trustee/Director   Trustee/Director of RCS, PCM, PGP and PKO since 2009, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for PDI, the 2017-2018 fiscal year for PCI and the 2018-2019 fiscal year for RCS, PGP, PCM and PKO.   Retired. Trustee (since 2002) and Chairman of Investment Committee (since 2007), Ronald McDonald House of New York; and Trustee, New Jersey City University (since 2014). Formerly, Vice Chairman and Managing Director, Spear, Leeds & Kellogg Specialists, LLC, a specialist firm on the New York Stock Exchange (2003-2008).   90    Trustee, Alpine Mutual Funds Complex consisting of 18 funds.

William B. Ogden, IV

1945

  Trustee/Director   Trustee/Director of PCM, RCS and PKO since 2008, Trustee of PGP since 2006, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for reelection at the annual meeting of shareholders held during the 2016-2017 fiscal year for PCI, the 2017-2018 fiscal year for PKO and PGP, and the 2018-2019 fiscal year for RCS, PCM and PDI.   Retired. Formerly, Asset Management Industry Consultant; and Managing Director, Investment Banking Division of Citigroup Global Markets Inc.   90    None

 

120   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/Director   Trustee/Director of RCS, PCM, PGP and PKO since 2010, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for PGP, PCI and PKO, the 2017-2018 fiscal year for RCS and PCM and the 2018-2019 fiscal year for PDI.   Advisory Director (formerly Vice Chairman), Roundtable Investment Partners (since 2009); Adjunct Professor, New York University Stern School of Business (since 2011); Lecturer, Stanford University Graduate School of Business (since 2013); Director, Victory Capital Holdings, Inc., an asset management firm (since 2013); and Member of Board of Overseers, NYU Langone Medical Center (since 2015). Formerly, Trustee, American Museum of Natural History (2005-2015); Trustee, NYU Langone Medical Center (2007-2015); Vice Chairman, US Trust (formerly Chairman and President of Private Bank of Bank of America, the predecessor entity of US Trust) (2001-2008).   90    None
Interested Trustees/Directors

Craig A. Dawson*

1968

  Trustee/Director   Trustee/Director of the Funds since 2014, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for PDI and PKO, the 2017-2018 fiscal year for RCS, PGP, PCI and PCM.   Managing Director and Head of PIMCO Europe, Middle East and Africa (since 2016). Director of a number of PIMCO’s Europeans investment vehicles and affiliates (since 2008). Formerly, Head of Strategic Business Management, PIMCO (2014-2016), head of PIMCO’s Munich office and head of European product management for PIMCO.   25    None

John C. Maney**

1959

  Trustee/Director   Director of RCS and PCM since 2008, Trustee of PGP since 2006, Trustee of PKO since 2007, Trustee of PDI since 2012 and Trustee of PCI since 2013, expected to stand for re-election at the annual meeting of shareholders held during the 2016-2017 fiscal year for PCM, RCS and PGP, the 2017-2018 fiscal year for PDI and the 2018-2019 fiscal year for PCI and PKO.   Managing Director of Allianz Asset Management of America L.P. (since January 2005) and a member of the Management Board and Chief Operating Officer of Allianz Asset Management of America L.P. (since November 2006). Formerly, 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).   25    None

 

* Mr. Dawson is an “interested person” of the Funds, as defined in Section 2(a)(19) of the Act, due to his affiliation with PIMCO and its affiliates. Mr. Dawson’s address is 650 Newport Center Drive, Newport Beach, CA 92660.
** Mr. Maney is an “interested person” of the Funds, as defined in Section 2(a)(19) of the Act, due to his affiliation with Allianz Asset Management of America L.P. and its affiliates. Mr. Maney’s address is 650 Newport Center Drive, Newport Beach, CA 92660.

 

  ANNUAL REPORT   JUNE 30, 2016   121


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 Past 5 Years*

Peter G. Strelow1

1970

   President    Since 2014    Managing Director, PIMCO. President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Youse Guia1

1972

   Chief Compliance Officer    Since 2014    Senior Vice President and Deputy Chief Compliance Officer, PIMCO. Chief Compliance Officer, PIMCO-Managed Funds. Formerly, Head of Compliance, Allianz Global Investors U.S. Holdings LLC and Chief Compliance Officer of the Allianz Funds, Allianz Multi-Strategy Trust, Allianz Global Investors Sponsored Closed-End Funds, Premier Multi-Series VIT and The Korea Fund, Inc.

Joshua D. Ratner

1976

   Vice President, Secretary and Chief Legal Officer    Since 2014    Executive Vice President and Senior Counsel, PIMCO. Chief Legal Officer, PIMCO Investments LLC. Vice President, Secretary and Chief Legal Officer, PIMCO-Managed Funds. Vice President — Senior Counsel, Secretary, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Ryan G. Leshaw1

1980

   Assistant Secretary    Since 2014    Senior Vice President and Senior Counsel, PIMCO. Assistant Secretary, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Associate, Willkie Farr & Gallagher LLP.

Stacie D. Anctil1

1969

   Vice President    Since 2015    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.

Eric D. Johnson

1970

   Vice President    Since 2014    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.

William G. Galipeau1

1974

   Treasurer    Since 2014    Executive Vice President, PIMCO. Treasurer, PIMCO-Managed Funds. Vice President, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Vice President, Fidelity Investments.

Erik C. Brown1

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.

Jason J. Nagler

1982

   Assistant Treasurer    Since 2015    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. Formerly, Head of Mutual Fund Reporting, GMO, and Assistant Treasurer, GMO Trust and GMO Series Trust Funds.

Trent W. Walker1

1974

   Assistant Treasurer    Since 2014    Executive Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds. Treasurer, 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.

 

122   PIMCO CLOSED-END FUNDS     


Approval of Investment Management Agreement

 

(Unaudited)

 

At an in-person meeting held on June 7, 2016 (the “Approval Meeting”), the Board of Trustees or Directors (for purposes of this disclosure, all Board members are hereinafter referred to as “Trustees”) of the Funds (the “Board”), including the Trustees who are not interested persons (as that term is defined in the Act) of the Funds or PIMCO (the “Independent Trustees”), formally considered and unanimously approved the continuation of the Investment Management Agreement between each Fund and PIMCO (the “Agreement”) for an additional one-year period commencing on September 5, 2016. Prior to the Approval Meeting, the Contracts Review Committee of the Board of each Fund (together, the “Committee”) held an in-person meeting on June 7, 2016 (the “Committee Meeting”) and formally considered and recommended to the Board the continuation of the Agreement for each Fund. Prior to the Approval Meeting, on May 4, 2016, the Chair of the Committee participated in a conference call with members of management and PIMCO personnel and counsel to the Independent Trustees (“Independent Counsel”) to discuss the process for the Board’s review of the Agreement and to consider certain information relating to the Funds, including, among other information, information relating to PIMCO’s profitability with respect to the Agreement, comparative fees and expenses and Fund performance. On April 29, 2016, PIMCO provided materials to the Committee for its consideration of the Agreement in response to a request from Independent Counsel (the “Manager Request Letter”), as well as other materials and information PIMCO believed was useful in evaluating the continuation of the Agreement.

 

On May 23, 2016, the Committee held a meeting via conference call (collectively with the May 4, 2016 conference call, Committee Meeting and the Approval Meeting, the “Contract Renewal Meetings”), at which the members of the Committee, all of whom are Independent Trustees, considered the materials and information provided by PIMCO bearing on the continuation of the Agreement. The Committee also received and reviewed a memorandum from counsel to the Funds regarding the Trustees’ responsibilities in evaluating the Agreement, which they discussed with Independent Counsel.

 

At the Committee Meeting and Approval Meeting, PIMCO presented certain additional supplemental information to the Independent Trustees regarding the Funds. Following the presentation at the Committee Meeting, the Independent Trustees met separately in executive session with Independent Counsel to review and discuss all relevant information, including, but not limited to, information provided in response to the Manager Request Letter and information presented and discussed at the prior Contract Renewal Meetings.

 

In connection with their deliberations regarding the proposed continuation of the Agreement for each Fund, the Trustees, including

the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees also considered the nature, quality and extent of the various investment management, administrative and other services performed by PIMCO under the Agreement.

 

It was noted that, in connection with their Contract Renewal Meetings, the Trustees relied upon materials provided by PIMCO which included, among other items: (i) information provided by Broadridge Financial Solutions, Inc./Lipper Inc. (“Lipper”), an independent third party, on the total return investment performance (based on net asset value and common share market price) of the Funds for various time periods, the investment performance of a group of funds with investment classifications/objectives comparable to those of the Funds identified by Lipper (the “Lipper performance universe”) and, with respect to each Fund, the performance of an applicable benchmark index, if any, (ii) information provided by Lipper on each Fund’s management fees and other expenses under the Agreement and the management fees and other expenses of a smaller sample of comparable funds identified by Lipper (the “Lipper expense group”) as well as of a larger sample of comparable funds identified by Lipper (the “Lipper expense universe”), (iii) information regarding the market value performance of each Fund’s common shares and related share price premium and/or discount information, (iv) information regarding the investment performance and fees for other funds and accounts managed by PIMCO, if any, with similar investment strategies to those of the Funds, (v) the estimated profitability to PIMCO with respect to the Funds for the one-year period ended December 31, 2015, (vi) descriptions of various functions performed by PIMCO for the Funds, such as portfolio management, compliance monitoring and portfolio trading practices, (vii) information regarding PIMCO’s compliance policies applicable to the Funds, (viii) information regarding the Funds’ use of leverage, (ix) a comparison of each Fund’s annualized total expense ratio as a percentage of average net assets attributable to common shareholders (excluding interest expenses) under the unified fee arrangements (the “Unified Fee Arrangements”) for the three most recent fiscal periods, as disclosed in each Fund’s annual report, (x) summaries assigning a quadrant placement to each Fund based on an average of certain measures of performance and fees/expenses versus Lipper peer group medians (the “Fund Scoring Summaries”), (xi) fact cards for each Fund that included summary information regarding each Fund, (xiii) information regarding the yields of the Funds, (xiv) information regarding the risk-adjusted returns of the Funds, and (xv) information regarding the overall organization of PIMCO, including information regarding senior management, portfolio managers and other personnel providing investment management, administrative, compliance and other services to the Funds.

 

 

  ANNUAL REPORT   JUNE 30, 2016   123


Approval of Investment Management Agreement (Cont.)

 

 

The Trustees’ conclusions as to the continuation of the Agreement were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors. The Trustees also took into account that the Funds’ current fee and expense arrangements were closely reviewed in 2014 in connection with the proposed transition from Allianz Global Investors Fund Management LLC (“AGIFM”) to PIMCO as the Funds’ investment manager, and that the Agreement had been approved by the shareholders of each Fund at special shareholder meetings in 2014.

 

As part of their review, the Trustees examined PIMCO’s abilities to provide high-quality investment management and other services to the Funds. Among other information, the Trustees considered the investment philosophy and research and decision-making processes of PIMCO; the experience of key advisory personnel of PIMCO responsible for portfolio management of the Funds; the ability of PIMCO to attract and retain capable personnel; and the capabilities of the senior management and staff of PIMCO. In addition, the Trustees reviewed the quality of PIMCO’s services with respect to regulatory compliance and compliance with the investment policies of the Funds; the nature and quality of the supervisory and administrative services PIMCO is responsible for providing to the Funds; and conditions that might affect PIMCO’s ability to provide high-quality services to the Funds in the future under the Agreement, including PIMCO’s financial condition and operational stability. Based on the foregoing, the Trustees concluded that PIMCO’s investment process, research capabilities and philosophy were well suited to the Funds given their investment objectives and policies, and that PIMCO would be able to continue to meet any reasonably foreseeable obligations under the Agreement.

 

In assessing the reasonableness of each Fund’s fees under the Agreement, the Trustees considered, among other information, the Fund’s management fee and its total expense ratio as a percentage of average net assets attributable to common shares and as a percentage of average managed assets (including assets attributable to common shares and leverage outstanding combined), and the management fee and total expense ratios of the Lipper expense group and Lipper expense universe for each Fund. In each case, the total expense ratio information was provided both inclusive and exclusive of interest and borrowing expenses. Fund-specific comparative fees/expenses reviewed by the Trustees are discussed below. The Fund-specific fee and expense results discussed below were prepared and provided by Lipper and were not independently verified by the Trustees.

The Trustees specifically took note of how each Fund compared to its Lipper peers as to performance, management fee expense and total expense ratio. The Trustees noted that, while the Funds are not currently charged a separate administration fee (recognizing that their management fees include a component for administrative services under the Unified Fee Arrangements), it was not clear in all cases whether the peer funds in the Lipper categories were separately charged such a fee by their investment managers, so that the total expense ratio, as opposed to any individual expense component, represented the most relevant comparison. The Trustees also considered that the total expense ratio seems to provide a more apt comparison than management fee expense because the Funds’ Unified Fee Arrangements cover Operating Expenses (defined below) that are typically paid for or incurred by peer funds directly in addition to their management fees as discussed below. It was noted that the total expense ratio comparisons reflect the effect of expense waivers/reimbursements, if any. The Trustees considered total expense ratio comparisons both including and excluding interest and borrowing expenses. The Trustees noted that only leveraged closed-end funds were considered for inclusion in the Lipper expense groups and Lipper expense universes presented for comparison with the Funds.

 

The Trustees noted that, for each Fund, with the exception of PCM, the contractual management fee rate for the Fund under its Unified Fee Arrangement was above the median contractual management fees of the other funds in its Lipper expense group, calculated both on average net assets and on average managed assets. However, in this regard, the Trustees took into account that each Fund’s Unified Fee Arrangement covers substantially all of the Fund’s other supervisory and administrative services required by the Fund that are typically paid for or incurred by closed-end funds directly in addition to a fund’s management fee (such fees and expenses, “Operating Expenses”) and therefore would tend to be higher than the contractual management fee rates of other funds in the Lipper peer groups, which generally do not have a unified fee structure and bear Operating Expenses directly and in addition to the management fee. The Trustees determined that a review of each Fund’s total expense ratio with the total expense ratios of peer funds would generally provide more meaningful comparisons than considering contractual management fee rates in isolation.

 

In this regard, the Trustees noted PIMCO’s view that the Unified Fee Arrangements have benefited and will continue to benefit common shareholders because they provide a management fee expense structure (including Operating Expenses) that is essentially fixed as a percentage of managed assets, making it more predictable under ordinary circumstances in comparison to fee and expense structures, such as the structure in place for the Funds prior to September 6, 2014, under which the Funds’ Operating Expenses (including certain

 

 

124   PIMCO CLOSED-END FUNDS     


(Unaudited)

 

third-party fees and expenses) can vary significantly over time. The Trustees also considered that the Unified 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).

 

The Trustees noted that the annualized total expense ratios (excluding interest expenses) as a percentage of average net assets attributable to common shareholders for PGP, PCI, PCM and PKO were slightly higher under the Unified Fee Arrangements than they were under the investment management agreement with AGIFM. It was noted that, with respect to PGP, PCM and PKO, the increase was largely due to increases in managed assets from increased leverage and, for PGP, PCM, PCI and PKO, decreased average net assets attributable to common shares.

 

Fund-specific comparative performance results for the Funds reviewed by the Trustees are discussed below. The comparative performance information was prepared and provided by Lipper and was not independently verified by the Trustees. Due to the passage of time, these performance results may differ from the performance results for more recent periods. With respect to all Funds, the Trustees reviewed, among other information, comparative information showing performance of the Funds against the Lipper performance universes for the one-year, three-year, five-year and ten-year periods (to the extent each such Fund had been in existence) ended December 31, 2015. The Trustees also reviewed the Fund Scoring Summaries prepared by PIMCO at the Independent Trustees’ request comparing each Fund’s fees/expenses and performance against those of its Lipper performance universe and Lipper expense universe by identifying a quadrant designation based on the average of six different measures of fees/expenses versus performance (one-year, three-year and five-year performance for the period ended December 31, 2015, in each case, versus a Fund’s management fees or total expense ratio). The Fund Scoring Summaries were based both on net assets and averaged managed assets and in each case both inclusive and exclusive of interest and borrowing expenses. In addition, the Trustees also reviewed fact cards for each Fund that included summary information regarding each Fund, including investment objective and strategy, portfolio managers, assets under management, outstanding leverage, net asset value and market performance comparisons, comparative fee and expense information, premium/discount information and information regarding PIMCO’s estimated profitability.

 

In addition, it was noted that 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.

 

Among other information, the Trustees took into account the following regarding particular Funds.

 

PGP

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, consisting of two funds, the Trustees noted that the Fund ranked first out of two funds for the one-year, three-year and five-year periods ended December 31, 2015. For the ten-year period, the Trustees noted that the Fund was the only fund within its Lipper performance universe.

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of seven funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $123.1 million to $287.1 million, and that four of the funds in the group were larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of 14 funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets and average net assets was above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was at the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe.

 

PKO

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, consisting of 12 funds for one-year performance, 11 funds for three-year performance and eight funds for five-year performance, the Trustees noted that the Fund had third quintile performance for the one-year and first quintile performance for the three-year and five-year periods ended December 31, 2015.

 

 

  ANNUAL REPORT   JUNE 30, 2016   125


Approval of Investment Management Agreement (Cont.)

 

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of seven funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $93.3 million to $373.2 million, and that three funds in the group were larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of 12 funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was at the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe.

 

PCM

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, consisting of nine funds for one-year performance, eight funds for three-year and five-year performance and five funds for ten-year performance, the Trustees noted that the Fund had fourth quintile performance for the one-year period, third quintile performance for the three-year period and first quintile performance for the five-year and ten-year periods ended December 31, 2015.

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of six funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $60.8 million to $457.9 million, and that all of the funds in the group were larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of nine funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets was below the median total

expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was at the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense universe.

 

RCS

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, consisting of 12 funds for one-year performance, 11 funds for three-year performance, eight funds for five-year performance and six funds for ten-year performance, the Trustees noted that the Fund had first quintile performance for the first-year, three-year, five-year and ten-year periods ended December 31, 2015.

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of seven funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the expense group ranged from $93.3 million to $373.2 million, and that one of the funds in the group was larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of 12 funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets and average net assets were below the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets and average net assets were below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe.

 

PCI

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance

 

 

126   PIMCO CLOSED-END FUNDS     


(Unaudited)

 

universe, consisting of 12 funds, the Trustees noted that the Fund had third quintile performance for the one-year period ended December 31, 2015 and first quintile performance for the period from the Fund’s inception on January 31, 2013 until December 31, 2015.

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of five funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $216.5 million to $1.551 billion and that no funds in the group were larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of 12 funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets was at the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets was above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was at the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe.

 

PDI

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, consisting of 12 funds for the one-year performance, 11 funds for the three-year and since inception performance, the Trustees noted that the Fund had first quintile performance for the one-year and three-year periods ended December 31, 2015 and for the period from the Fund’s inception on May 30, 2012 until December 31, 2015.

 

The Trustees noted that the Lipper expense group for the Fund consisted of a total of five funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in

the group ranged from $216.5 million to $1.480 billion and that no funds in the group were larger in asset size than the Fund. The Trustees noted that the Lipper expense universe for the Fund consisted of a total of 12 funds, including the Fund. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on average managed assets and average net assets were above the median total expense ratio (including interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was at the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average managed assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on average net assets was above the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Lipper expense group and Lipper expense universe.

 

In addition to their review of Fund performance based on net asset value, the Trustees also considered the market value performance of each Fund’s common shares and related share price premium and/or discount information based on the materials provided by Lipper and PIMCO.

 

The Trustees also considered the management fees charged by PIMCO to other funds and accounts with similar strategies to those of the Funds, if any, including any similar open-end funds. The Trustees noted that the management fees paid by the Funds are generally higher than the fees paid by any open-end funds offered for comparison, but were advised by PIMCO that there are additional portfolio management challenges in managing closed-end funds such as the Funds, such as those associated with less liquid holdings, the use of leverage, issues relating to trading on a national exchange and attempting to meet a regular dividend. With respect to PGP and RCS, the Trustees were advised that PIMCO does not manage any funds or accounts which have an investment strategy or return profile bearing similarities to those Funds.

 

The Trustees also took into account that all Funds, with the exception of RCS, pay management fees on assets attributable to types of leverage that they use (such as reverse repurchase agreements) under the Agreement (because each Fund’s fees, except those of RCS, are calculated based on total managed assets, including assets attributable to reverse repurchase agreements and/or certain other forms of leverage outstanding). They noted that RCS’s management fees are

 

 

  ANNUAL REPORT   JUNE 30, 2016   127


Approval of Investment Management Agreement (Cont.)

 

based on daily net assets, including net assets attributable to any preferred shares that may be outstanding, but that RCS does not have any preferred shares outstanding. In this regard, the Trustees took into account that PIMCO has a financial incentive for the Funds to continue to use leverage, which may create a conflict of interest between PIMCO, on one hand, and the Funds’ common shareholders, on the other. The Trustees further noted that this incentive may be greater under the Unified Fee Arrangements because the contractual management fee rates under the Unified Fee Agreements are higher for each Fund than the Fund’s management fee would otherwise be if it did not cover the Fund’s Operating Expenses — i.e., in comparison to their non-unified management fee rates in place prior to September 6, 2014 — with the exception of PCI and PDI, which have the same management fee rates at they did prior to September 6, 2014. Therefore, with the exception of PCI and PDI, the total fees paid by each Fund to PIMCO under the Unified Fee Arrangements will therefore vary more with increases and decreases in applicable leverage incurred by a Fund than under its prior non-unified fee arrangement, all 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 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 RCS does not pay fees on assets attributable to the types of leverage that the Fund currently employs.

 

The Trustees also considered estimated profitability analyses provided by PIMCO, which included, among other information, (i) the estimated profitability to PIMCO with respect to each Fund for the one-year period ended December 31, 2015, (ii) information comparing the estimated profitability to PIMCO with respect to all of the closed-end funds advised by PIMCO, including the Funds, for the one-year period ended December 31, 2015 for serving as the Funds’ investment manager to the profitability to PIMCO with respect to all of the closed-end funds advised by PIMCO, including the Funds, for the one-year period ended December 31, 2014 for serving as the sub-adviser from January 1, 2014 through the close of business on September 5, 2014, and for serving as the Funds’ investment manager from September 6, 2014 through December 31, 2014; (iii) 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; and (iv) an overview of PIMCO’s estimated profitability with respect to all of the closed-end funds advised by PIMCO, including the Funds, compared to PIMCO’s profitability with respect to its other

clients, including PIMCO-advised separate accounts, open-end funds and hedge funds and private equity funds. The Trustees also took into account explanations from PIMCO regarding how certain 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 took into account the entrepreneurial and business risk PIMCO has undertaken as investment manager and sponsor of the Funds.

 

The Trustees also took into account that the Funds do not currently have any breakpoints in their management fees and, as closed-end investment companies, the Funds did not at the time of the review intend to raise additional assets, so the assets of the Funds were expected to grow (if at all) principally through the investment performance of each Fund and/or the increased use of leverage. The Trustees also considered that the Unified Fee Arrangements provide inherent economies of scale because a Fund maintains competitive fixed unified fees even if the particular Fund’s assets decline and/or operating costs rise. The Trustees further considered that, in contrast, breakpoints are 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 Trustees also considered that, unlike the Funds’ Unified 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 Unified Fee Arrangements protect shareholders from a rise in operating costs that may result from, including, 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 PIMCO may receive from broker-dealers executing the Funds’ portfolio transactions on an agency basis.

 

After reviewing these and other factors described herein, the Trustees concluded, with respect to each Fund, within the context of their overall conclusions regarding the Agreement and based on the information provided and related representations made by management, 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 Agreement represent reasonable compensation in light of the nature, extent and

 

 

128   PIMCO CLOSED-END FUNDS     


(Unaudited)

 

quality of services provided by PIMCO. Based on their evaluation of factors that they deemed to be material, including those factors described above, the Trustees, including the Independent Trustees, unanimously concluded that the continuation of the Agreement was in the interests of each Fund and its shareholders, and should be approved.

 

 

  ANNUAL REPORT   JUNE 30, 2016   129


Privacy Policy1

 

The Funds2 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 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 adviser or sub-adviser (“Adviser”), 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 advisor 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 advisor 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 advised by PIMCO 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 Adviser or its 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

 

Websites maintained by the Funds or their service providers may use a variety of technologies to collect information that help the Funds and their service providers understand how the website is used. Information collected from your web browser (including small files stored on your device that are commonly referred to as “cookies”) allow the websites to recognize your web browser and help to personalize and improve your user experience and enhance navigation of the website. In addition, the Funds or their Service Affiliates may use third parties to place advertisements for the Funds on other websites, including banner advertisements. Such third parties may collect anonymous information through the use of cookies or action tags (such as web beacons). The information these third parties collect is generally limited to technical and web navigation information, such as your IP address, web pages visited and browser type, and does not include personally identifiable information such as name, address, phone number or email address.

 

 

130   PIMCO CLOSED-END FUNDS     


(Unaudited)

 

 

You can change your cookie preferences by changing the setting on your web browser to delete or reject cookies. If you delete or reject cookies, some website pages may not function properly.

 

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 May 13, 2015.

2 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   JUNE 30, 2016   131


General Information

 

Investment Manager

Pacific Investment Management Company LLC

1633 Broadway

New York, NY 10019

 

Custodian

State Street Bank and Trust Company

801 Pennsylvania Avenue

Kansas City, MO 64105

 

Transfer Agent, Dividend Paying Agent and Registrar

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

 

Legal Counsel

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

1100 Walnut Street, Suite 1300

Kansas City, MO 64106

 

This report is submitted for the general information of the shareholders of PCM Fund, Inc., PIMCO Global StocksPLUS® & Income Fund, PIMCO Income Opportunity Fund, PIMCO Strategic Income Fund, Inc., PIMCO Dynamic Credit and Mortgage Income Fund and PIMCO Dynamic Income Fund.


 

LOGO

 

CEF3010AR_063016


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 & accounting 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 & accounting 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.

(a) The Board of Trustees has determined that James A. Jacobson, 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. Jacobson is “independent” as such term is interpreted under this Item 3.


Item 4. Principal Accountant Fees and Services.

 

  (a)    Fiscal Year Ended    Audit Fees   
     June 30, 2016    $              63,756   
     June 30, 2015    $              74,646   
  (b)    Fiscal Year Ended    Audit-Related Fees(1)   
     June 30, 2016    $                      —   
     June 30, 2015    $                      —   
  (c)    Fiscal Year Ended    Tax Fees   
     June 30, 2016    $              27,250   
     June 30, 2015    $              50,970   
  (d)    Fiscal Year Ended    All Other Fees(1)   
     June 30, 2016    $                      —   
     June 30, 2015    $                      —   

“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, 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. The amounts under “Tax Fees” shown above have been updated from amounts shown in prior filings of this report, as applicable, due to changes in how certain fees are categorized for these purposes.

“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 “Audit-Related Fees” and “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

 

 

June 30, 2016

 

       

June 30, 2015

 

 

  PIMCO Dynamic Credit and Mortgage Income Fund

  $ 27,250        $ 50,970   

  Pacific Investment Management Company LLC (“PIMCO”)

   

 

7,767,308

 

  

 

       

 

9,815,893

 

  

 

Total

  $ 7,794,558        $ 9,866,863   
                 

*The amounts have been updated from amounts shown in prior filings of this report, as applicable, due to changes in how certain fees are categorized for these purposes.

 

  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.

 

Item 5. Audit Committee of Listed Registrants.

The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The audit committee is comprised of:

Deborah A. DeCotis;

Bradford K. Gallagher;

James A. Jacobson;

Hans W. Kertess;

William B. Ogden, IV; and

Alan Rappaport.

 

Item 6. Schedule of Investments.

The Schedule of Investments is included as part of the reports to shareholders under Item 1.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Advisers Act. In addition to covering the voting of equity securities, the Proxy Policy also applies generally to voting and/or consent rights of fixed income securities, including but not limited to, plans of reorganization, and waivers and consents under applicable indentures. The Proxy Policy does not apply, however, to consent rights that primarily entail decisions to buy or sell investments, such as tender or exchange offers, conversions, put options, redemption and Dutch auctions. The Proxy Policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights (collectively, “proxies”) are exercised in the best interests of accounts.

With respect to the voting of proxies relating to equity securities, PIMCO has selected an unaffiliated third party proxy research and voting service (“Proxy Voting Service”), to assist it in researching and voting proxies. With respect to each proxy received, the Proxy Voting Service researches the financial implications of the proposals and provides a recommendation to PIMCO as to how to vote on each proposal based on the Proxy Voting Service’s research of the individual facts and circumstances and the Proxy Voting Service’s application of its research findings to a set of guidelines that have been approved by PIMCO. Upon the recommendation of the applicable portfolio managers, PIMCO may determine to override any recommendation made by the Proxy Voting Service. In the event that the Proxy Voting Service does not provide a recommendation with respect to a proposal, PIMCO may determine to vote on the proposals directly.

With respect to the voting of proxies relating to fixed income securities, PIMCO’s fixed income credit research group (the “Credit Research Group”) is responsible for researching and issuing recommendations for voting proxies. With


respect to each proxy received, the Credit Research Group researches the financial implications of the proxy proposal and makes voting recommendations specific for each account that holds the related fixed income security. PIMCO considers each proposal regarding a fixed income security on a case-by-case basis taking into consideration any relevant contractual obligations as well as other relevant facts and circumstances at the time of the vote. Upon the recommendation of the applicable portfolio managers, PIMCO may determine to override any recommendation made by the Credit Research Group. In the event that the Credit Research Group does not provide a recommendation with respect to a proposal,

PIMCO may determine to vote the proposal directly.

PIMCO may determine not to vote a proxy for an equity or fixed income security if: (1) the effect on the applicable account’s economic interests or the value of the portfolio holding is insignificant in relation to the account’s portfolio; (2) the cost of voting the proxy outweighs the possible benefit to the applicable account, including, without limitation, situations where a jurisdiction imposes share blocking restrictions which may affect the ability of the portfolio managers to effect trades in the related security; or (3) PIMCO otherwise has determined that it is consistent with its fiduciary obligations not to vote the proxy.

In the event that the Proxy Voting Service or the Credit Research Group, as applicable, does not provide a recommendation or the portfolio managers of a client account propose to override a recommendation by the Proxy Voting Service, or the Credit Research Group, as applicable, PIMCO will review the proxy to determine whether there is a material conflict between PIMCO and the applicable account or among PIMCO-advised accounts. If no material conflict exists, the proxy will be voted according to the portfolio managers’ recommendation. If a material conflict does exist, PIMCO will seek to resolve the conflict in good faith and in the best interests of the applicable client account, as provided by the Proxy Policy. 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 committee to assess and resolve the conflict (the “Proxy Conflicts Committee”); or (ii) vote in accordance with protocols previously established by the Proxy Policy, the Proxy Conflicts Committee and/or other relevant procedures approved by PIMCO’s Legal and Compliance department with respect to specific types of conflicts. With respect to material conflicts of interest between one or more PIMCO-advised accounts, the Proxy Policy permits PIMCO to: (i) designate a PIMCO portfolio manager who is not subject to the conflict to determine how to vote the proxy if the conflict exists between two accounts with at least one portfolio manager in common; or (ii) permit the respective portfolio managers to vote the proxies in accordance with each client account’s best interests if the conflict exists between client accounts managed by different portfolio managers.

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.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

(a)(1)

As of August 26, 2016, the following individuals have primary responsibility for the day-to-day implementation of the PIMCO Dynamic Credit and Mortgage Income Fund (formerly, PIMCO Dynamic Credit Income Fund) (the “Fund”):

Sai S. Devabhaktuni

Mr. Devabhaktuni has been a portfolio manager of the Fund since the Fund’s inception in January 2013. Mr. Devabhaktuni is an executive vice president in the Newport Beach office and head of corporate distressed portfolio management. Prior to joining PIMCO in 2012, he was founder and managing principal of Monocle Group LLC, an investment firm focused on opportunities in stressed and distressed securities, post-reorganization securities and special situation equities. Previously he was one of three managing principals for 12 years with MHR Fund Management LLC, a New York-based private equity firm specializing in the distressed securities market. Earlier in his career he was an analyst with Highbridge Capital Management LLC and Nomura Securities.

Daniel J. Ivascyn

Mr. Ivascyn has been a portfolio manager of the Fund since January 2014. 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.


Mark R. Kiesel

Mr. Kiesel has been a portfolio manager of the Fund since the Fund’s inception in January 2013. Mr. Kiesel is CIO Global Credit and a managing director in the Newport Beach office. He is a member of the PIMCO Investment Committee, a generalist portfolio manager and the global head of corporate bond portfolio management. He has served as a portfolio manager, head of equity derivatives and as a senior Credit Analyst since joining PIMCO in 1996.

Elizabeth O. MacLean

Ms. MacLean has been a portfolio manager of the Fund since the Fund’s inception in January 2013. Ms. MacLean is an executive vice president in the Newport Beach office and a portfolio manager focusing on bank loans. Prior to joining PIMCO in 2011, she was a Partner and a portfolio manager at Lord Abbett & Co., LLC. Previously, she worked as a Managing Director and a portfolio manager at Nomura Corporate Research and Asset Management and a Vice President and a portfolio manager at Pilgrim Investments (now ING Pilgrim).

Alfred T. Murata

Mr. Murata has been the lead portfolio manager of the Fund since January 2014 and has been a portfolio manager of the Fund since the Fund’s inception in January 2013. 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 June 30, 2016, 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
 

PM

 

  #   AUM($million)   #   AUM($million)   #   AUM($million)
 

Sai S. Devabhaktuni

 

  0   0   1   $0.44   14   $75.18
 

Daniel J. Ivascyn

 

  13   $72, 245.77   13   $18,726.94*   128   $8,809.33**
 

Mark R. Kiesel

 

  21   $155,643.90   64   $69,173.24***   135   $70,714.20****
 

Elizabeth O. MacLean

 

  2   $1,075.61   11   $6,542.28*****   13   $487.30
 

Alfred T. Murata

 

  9   $67,741.91   4   $8,726.12   7   $997.22

* Of these Other Pooled Investment Vehicles,     1     account(s) totaling   $12.94    million in assets pay(s) an advisory fee that is based in part on the performance of the accounts.

**Of these Other Accounts,     3     account(s) totaling     $2,273.58     million in assets pay(s) an advisory fee that is based in part on the performance of the accounts.


*** Of these Other Pooled Investment Vehicles,     11       account(s) totaling     $9,161.49       million in assets pay(s) an advisory fee that is based in part on the performance of the accounts.

****Of these Other Accounts,   16     account(s) totaling   $5,986.12     million in assets pay(s) an advisory fee that is based in part on the performance of the accounts.

*****Of these Other Pooled Investment Vehicles,     1     account(s) totaling       $212.25       million in assets pay(s) 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 the 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 about an issuer. Other accounts managed by a portfolio manager might have similar investment objectives or strategies as the Fund, track the same index as the Fund or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Fund. The other accounts might also have different investment objectives or strategies than the Fund. Potential and actual conflicts of interest may also arise as a result of PIMCO serving as investment adviser to accounts that invest in the Fund. In this case, such conflicts of interest could in theory give rise to incentives for PIMCO to, among other things, vote proxies of the Fund in a manner beneficial to the investing account but detrimental to the Fund. Conversely, PIMCO’s duties to the Fund, as well as regulatory or other limitations applicable to the Fund, may affect the courses of action available to PIMCO-advised accounts (including certain funds) that invest in the Fund in a manner that is detrimental to such investing accounts.

Because PIMCO is affiliated with Allianz, a large multi-national financial institution, conflicts similar to those described below may occur between the Fund and 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 Fund 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 Fund or other accounts managed by PIMCO.

Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of the portfolio manager’s day-to-day management of the Fund. Because of their positions with the Fund, the portfolio managers know the size, timing and possible market impact of the 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 the Fund.

Investment Opportunities. A potential conflict of interest may arise as a result of the portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both the Fund and other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both the Fund and the other accounts to participate fully. In addition, regulatory issues applicable to PIMCO or the Fund or other accounts may result in the Fund not receiving securities that may otherwise be appropriate for it. Similarly, there may be limited opportunity to sell an investment held by the Fund and another account. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.

Under PIMCO’s allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines and PIMCO’s investment outlook. 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 Fund and certain pooled investment vehicles, including investment opportunity allocation issues.

Conflicts potentially limiting the Fund’s investment opportunities may also arise when the Fund and other PIMCO clients invest in different parts of an issuer’s capital structure, such as when the Fund owns senior debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order to minimize


such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts with other PIMCO clients or PIMCO may enact internal procedures designed to minimize such conflicts, which could have the effect of limiting the Fund’s investment opportunities. Additionally, if PIMCO acquires material non-public confidential information in connection with its business activities for other clients, a portfolio manager may be restricted from purchasing securities or selling securities for the Fund. Moreover, the Fund or other accounts managed by PIMCO may invest in a transaction in which one or more other funds or accounts managed by PIMCO are expected to participate, or already have made or will seek to make, an investment. Such funds or accounts may have conflicting interests and objectives in connection with such investments, including, for example and without limitation, 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 investment decisions where a conflict of interest may arise, PIMCO will endeavor to act in a fair and equitable manner as between the Fund and other clients; however, in certain instances the resolution of the conflict may result in PIMCO acting on behalf of another client in a manner that may not be in the best interest, or may be opposed to the best interest, of the Fund.

Performance Fees. A portfolio manager may advise certain accounts with respect to which the advisory 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 the Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the Fund and certain pooled investment vehicles on a fair and equitable basis over time.

(a)(3)

As of June 30, 2016 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 has adopted a Total Compensation Plan for its professional level employees, including its portfolio managers, that is designed to pay competitive compensation and reward performance, integrity and teamwork consistent with the firm’s mission statement. The Total Compensation Plan includes an incentive component that rewards high performance standards, work ethic and consistent individual and team contributions to the firm. The compensation of portfolio managers consists of a base salary and discretionary performance bonuses, and may include an equity or long term incentive component.

Certain employees of PIMCO, including portfolio managers, may elect to defer compensation through PIMCO’s deferred compensation plan. PIMCO also offers its employees a non-contributory defined contribution plan through which PIMCO makes a contribution based on the employee’s compensation. PIMCO’s contribution rate increases at a specified compensation level, which is a level that would include portfolio managers.

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.

 

   

PIMCO’s “Discern and Differentiate” discipline is exercised where individual performance rating is used for guidance as it relates to total compensation levels.

The Total Compensation Plan consists of three components:

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 individual performance. Each professional and his or her supervisor will agree upon performance objectives to serve as a basis for performance evaluation during the year. The objectives will outline individual goals according to pre-established measures of the group or department success. Achievement against these goals as measured by the employee and supervisor will be an important, but not exclusive, element of the bonus decision process. Award amounts are determined at the discretion of the Compensation Committee (and/or certain senior portfolio managers, as appropriate) and will also consider firm performance.

Deferred Compensation – M Options and/or 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 M Unit program provides mid-to-senior level employees with the potential to acquire an equity stake in PIMCO over their careers and to better align employee incentives with the firm’s long-term results. In the program, options are awarded and vest over a number of years and may convert into PIMCO equity which shares in the profit distributions of the firm. M Units are non-voting common equity of PIMCO and provide a mechanism for individuals to build a significant equity stake in PIMCO over time.

 

   

The LTIP provides 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.

 

   

Participation in M Unit program and LTIP is contingent upon continued employment at PIMCO.

In addition, the following non-exclusive list of criteria may be considered when specifically determining the total compensation for portfolio managers:

 

   

3-year, 2-year and 1-year dollar-weighted and account-weighted, pre-tax investment performance as judged against the applicable benchmarks for each account managed by a portfolio manager (including the Funds) and relative to applicable industry peer groups;

 

   

Appropriate risk positioning that is consistent with PIMCO’s investment philosophy and the Investment Committee/CIO approach to the generation of alpha;

 

   

Amount and nature of assets managed by the portfolio manager;

 

   

Consistency of investment performance across portfolios of similar mandate and guidelines (reward low dispersion);

 

   

Generation and contribution of investment ideas in the context of PIMCO’s secular and cyclical forums, portfolio strategy meetings, Investment Committee meetings, and on a day-to-day basis;

 

   

Absence of defaults and price defaults for issues in the portfolios managed by the portfolio manager;

 

   

Contributions to asset retention, gathering and client satisfaction;

 

   

Contributions to mentoring, coaching and/or supervising; and

 

   

Personal growth and skills added.

A portfolio manager’s compensation is not based solely on the performance of any Fund or any other account managed by that portfolio manager. They are also evaluated against some of the non-exclusive list of qualitative criteria listed above.

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 June 30, 2016:

 

 

Portfolio Manager

  

  Dollar Range of Equity Securities of the

Fund Owned as of June 30, 2016

 

 

Sai S. Devabhaktuni

  

  $100,001-$500,000

 

Daniel J. Ivascyn

  

  Over $1,000,000

 

Mark R. Kiesel

  

  Over $1,000,000

 

Elizabeth O. MacLean

  

  $50,001-$100,000

 

Alfred T. Murata

  

  $500,001-$1,000,000

 

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 that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) provide reasonable assurances that material information relating to the Registrant is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

 

  (b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 12. Exhibits.

 

  (a)(1) Exhibit 99.CODE— Code of Ethics 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.

 

  (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 Dynamic Credit and Mortgage Income Fund
    By:  

/s/     PETER G. STRELOW

 

     

 

      Peter G. Strelow
      President (Principal Executive Officer)
    Date:   August 26, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

    By:  

/s/     PETER G. STRELOW

 

     

 

      Peter G. Strelow
      President (Principal Executive Officer)
    Date:   August 26, 2016
    By:  

/s/     WILLIAM G. GALIPEAU

 

     

 

      William G. Galipeau
      Treasurer (Principal Financial & Accounting Officer)
    Date:   August 26, 2016