N-CSRS 1 d104334dncsrs.htm PIMCO CORPORATE & INCOME OPPORTUNITY FUND PIMCO Corporate & Income Opportunity Fund
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-21238

PIMCO Corporate & Income Opportunity Fund

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

Bijal Parikh

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive

Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

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

Date of fiscal year end: July 31

Date of reporting period: January 31, 2021

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

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


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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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LOGO

 

PIMCO CLOSED-END FUNDS

Semiannual Report

 

January 31, 2021

 

PIMCO Corporate & Income Opportunity Fund | PTY | NYSE

 

PIMCO Corporate & Income Strategy Fund | PCN | NYSE

 

PIMCO High Income Fund | PHK | NYSE

 

PIMCO Income Strategy Fund | PFL | NYSE

 

PIMCO Income Strategy Fund II | PFN | NYSE

 

As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Fund’s website, pimco.com/literature, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by visiting pimco.com/edelivery or by contacting your financial intermediary, such as a broker-dealer or bank.

 

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


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Table of Contents

 

            Page  
     

Letter from the Chair of the Board & President

        2  

Important Information About the Funds

        4  

Financial Highlights

        16  

Statements of Assets and Liabilities

        19  

Statements of Operations

        20  

Statements of Changes in Net Assets

        22  

Statements of Cash Flows

        24  

Notes to Financial Statements

        90  

Changes to Boards of Trustees

        117  

Glossary

        118  

Distribution Information

        119  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PIMCO Corporate & Income Opportunity Fund

     11        25  

PIMCO Corporate & Income Strategy Fund

     12        41  

PIMCO High Income Fund

     13        53  

PIMCO Income Strategy Fund

     14        65  

PIMCO Income Strategy Fund II

     15        77  


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Letter from the Chair of the Board & President              

 

Dear Shareholder,

 

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

 

For the six-month reporting period ended January 31, 2021

 

The global economy was severely impacted by the repercussions related to the COVID-19 pandemic. Looking back before the reporting period began, second-quarter 2020 U.S. annualized gross domestic product (“GDP”) was -31.4%. This represented the steepest quarterly decline on record. With the economy reopening, third-quarter GDP growth was 33.4%, the largest quarterly increase on record. The Commerce Department’s initial estimate for fourth-quarter annualized GDP was 4.0%.

 

The Federal Reserve (the “Fed”) took unprecedented actions to support the economy and keep markets functioning properly. In early March 2020, before the reporting period began, the Fed lowered the federal funds rate to a range between 1.00% and 1.25%. Later in the month, the Fed lowered the rate to a range between 0.00% and 0.25%. On March 23, the Fed announced that it would make unlimited purchases of Treasury and mortgage securities and, for the first time, it would purchase corporate bonds on the open market. In August 2020, Fed Chair Jerome Powell said the central bank had changed how it viewed the trade-off between lower unemployment and higher inflation. Per Powell’s statement, the Fed’s new approach to setting U.S. monetary policy will entail letting inflation run higher, which could mean that interest rates remain low for an extended period. Meanwhile, in March 2020, the U.S. government passed a total of roughly $2.8 trillion in fiscal stimulus measures to aid the economy. A subsequent $900 billion stimulus package was finalized in December 2020.

 

Economies outside the U.S. were also significantly impacted by the pandemic, but are expected to improve in 2021. In its January 2021 World Economic Outlook Update, the International Monetary Fund (“IMF”) stated that it expects 2021 GDP growth in the eurozone, U.K. and Japan will be 4.2%, 4.5% and 3.1%, respectively. For comparison purposes, the GDP of these economies were projected to be -7.2%, -10.0% and -5.1%, respectively, in 2020.

 

Against this backdrop, central banks and governments around the world took a number of aggressive actions. Looking back, in March 2020, the European Central Bank (the “ECB”) unveiled a new 750 billion bond-buying program, which was subsequently expanded by another 600 billion in June 2020. In July, the European Union agreed on a 1.8 trillion spending package to bolster its economy. In December 2020, the ECB expanded its monetary stimulus program by another 500 billion. The Bank of England reduced its key lending rate to 0.10% — a record low — in March, added £100 billion to its quantitative easing program in June, and increased its bond-buying program by £150 billion to £895 billion in November. Finally, toward the end of the year, the U.K. and the European Union agreed to a long-awaited Brexit deal. Elsewhere, the Bank of Japan maintained its short-term interest rate at -0.10%, while increasing the target for its holdings of corporate bonds to ¥4.2 trillion from ¥3.2 trillion. In May 2020, the Japanese government doubled its stimulus measures with a ¥117 trillion package. Finally, in December 2020, the Bank of Japan announced a new ¥73.6 trillion stimulus package.

 

Short-term U.S. Treasury yields were unchanged overall, whereas long-term yields moved higher, albeit from a very low level during the reporting period. The yield on the benchmark 10-year U.S. Treasury note was 1.11% at the end of the reporting period, versus 0.55% on July 31, 2020. The Bloomberg Barclays Global Treasury Index (USD Hedged), which tracks fixed-rate, local currency government debt of investment grade countries, including both developed and emerging markets, returned -0.63%. Meanwhile, the Bloomberg Barclays Global Aggregate Credit Index (USD Hedged), a widely used index of global investment grade credit bonds, returned 1.03%. Riskier fixed income asset classes, including high yield corporate bonds and emerging market debt, produced stronger returns. The ICE BofAML

 

       
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Developed Markets High Yield Constrained Index (USD Hedged), a widely used index of below-investment-grade bonds, returned 6.94%, whereas emerging market external debt, as represented by the JPMorgan Emerging Markets Bond Index (EMBI) Global (USD Hedged), returned 2.79%. Emerging market local bonds, as represented by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged), returned 5.91%.

 

Despite the headwinds from the pandemic, global equities produced strong results. All told, U.S. equities, as represented by the S&P 500 Index, returned 14.47%, partially fueled by a sharp rally in November and December 2020, because, in our view, investor sentiment improved after positive COVID-19 vaccine news. Global equities, as represented by the MSCI World Index, returned 16.21%, whereas emerging market equities, as measured by the MSCI Emerging Markets Index, returned 24.07%. Meanwhile, Japanese equities, as represented by the Nikkei 225 Index (in JPY), returned 30.43% and European equities, as represented by the MSCI Europe Index (in EUR), returned 11.61%.

 

Commodity prices were volatile and produced mixed results. When the reporting period began, Brent crude oil was approximately $43 a barrel. Brent crude oil ended the reporting period at roughly $55 a barrel. We believe that oil prices rallied because producers reduced their output and investors anticipated stronger demand as global growth improved and several new COVID-19 vaccines were introduced. Elsewhere, copper prices moved higher, while gold declined.

 

Finally, there were also periods of volatility in the foreign exchange markets, in our view due to fluctuating economic growth, trade conflicts and changing central bank monetary policies, along with the U.S. election and several geopolitical events. The U.S. dollar weakened against a number of other major currencies. For example, the U.S. dollar returned -2.53%, -4.57% and -0.87% versus the euro, the British pound and the Japanese yen, respectively.

 

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

 

Sincerely,

 

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

 

Past performance is no guarantee of future results. Unless otherwise noted, index returns reflect the reinvestment of income distributions and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an unmanaged index.

 

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

 

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

 

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

 

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

 

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

 

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, leverage risk, management risk and the risk that a Fund may not be able to close out a position when it would be most advantageous to do so. Changes in regulation relating to a 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/or adversely affect the value or performance of derivatives and the Fund. 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

 

 

       
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investments. As a result, a relatively small price movement in an asset, instrument or component of the index underlying a derivative instrument may cause an immediate and substantial loss or gain, which translates into heightened volatility in a Fund’s NAV. A Fund may engage in such transactions regardless of whether the Fund owns the asset, instrument or components of the index underlying the 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 own.

 

Certain Funds’ monthly distributions may 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 (including swaps that are paired) may attempt to capitalize on differences between short-term and long-term interest rates as part of a Fund’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.

 

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 of leverage to the Fund 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. Moreover, to make payments of interest and other loan costs, a Fund may be forced to sell portfolio securities when it is not otherwise advantageous to do so.

 

In addition, because the fees received by PIMCO are based on the average weekly total managed assets (including any assets attributable to any preferred shares or other forms of leverage that may be outstanding) minus any accrued liabilities (other than liabilities representing leverage) of PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II, and on the average daily net asset value (including daily net assets attributable to any preferred shares that may be outstanding) of PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund, PIMCO has a financial incentive for a Fund to use certain forms of leverage, which may create a conflict of interest between PIMCO, on the one hand, and the common shareholders of a Fund, on the other hand.

 

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 NAV 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 NAV 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

 

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     5
    


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Important Information About the Funds   (Cont.)  

 

lose its entire investment in foreign securities. Investing in foreign (non-U.S.) securities may entail risk due to foreign (non-U.S.) economic and political developments; this risk may be increased when investing 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 foreign (non-U.S.) issuer.

 

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

 

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

 

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

 

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

 

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

 

The Funds may invest in certain instruments that rely in some fashion upon the London Interbank Offered Rate (“LIBOR”). LIBOR is an

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

 

Under the direction of the Federal Housing Finance Agency, the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) have entered into a joint initiative to develop a common securitization platform for the issuance of a uniform mortgage-backed security (the “Single Security Initiative”) that aligns the characteristics of FNMA and FHLMC certificates. The Single Security Initiative was implemented on June 3, 2019 and the effects it may have on the market for mortgage-backed securities are uncertain.

 

The Funds may be subject to various risks, including, but not limited to, the following: asset allocation risk, credit risk, distressed and defaulted securities risk, contingent convertible securities risk, high yield securities risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, prepayment risk, privately issued mortgage-related securities risk, mortgage–related and other asset-backed securities risk, foreign (non-U.S.) investment risk, “covenant-lite” obligations risk, subprime risk, emerging markets risk, currency risk, redenomination risk, management risk, inflation-indexed security risk, senior debt risk, loans and other indebtedness; participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, valuation risk, segregation and coverage risk, focused investment risk, credit default swaps risk, counterparty risk, preferred securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory changes risk, regulatory risk — LIBOR, regulatory risk – commodity pool operator, tax risk, market disruptions risk, potential conflicts of interest involving allocation of investment opportunities, repurchase agreements risk, zero-coupon bond, step-ups and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk, convertible

 

 

       
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securities risk, market discount risk, interest rate risk, leverage risk, call risk, derivatives risk, synthetic convertible securities risk, operational risk, cybersecurity risk, structured investments risk, collateralized loan obligations risk, distribution risk and restricted securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this Report.

 

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

 

Investments in loans through a purchase of a loan or a direct assignment of a financial institution’s interests with respect to a loan 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. A Fund may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans.

 

Mortgage-related and other asset-backed securities represent interests in “pools” of mortgages or other assets such as consumer loans or receivables held in trust and often involve risks that are different from or possibly 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 exhibit additional volatility since individual mortgage holders are less likely to exercise prepayment options, thereby putting additional downward pressure on the value of these securities and potentially causing the Fund to lose money. This is known as extension risk. Mortgage-backed securities can be highly sensitive to rising interest rates, such that even small movements can cause an investing Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. In addition, adjustable and fixed rate mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Funds because the Funds may have to reinvest that money at the lower prevailing interest rates. The Funds’ investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset- backed securities may be largely dependent upon the cash flows generated by the assets backing the securities, and asset-backed securities may not have the benefit of any security interest in the related assets. Additionally, investments in subordinate mortgage-backed and other asset-backed instruments will be subject to risks arising from delinquencies and foreclosures, thereby exposing a Fund’s investment portfolio to potential losses. Subordinate securities of mortgage-backed and other asset-backed instruments are also subject to greater credit risk than those mortgage-backed or other asset-backed securities that are more highly rated.

 

A Fund may also invest in the residual or equity tranches of mortgage- related and other asset-backed instruments, which may be referred to as subordinate mortgage-backed or asset-backed instruments and interest-only mortgage-backed or asset-backed instruments. Because an investment in the residual or equity tranche of a mortgage-related or other asset-backed instrument will be the first to bear losses incurred by such instrument, these investments may involve a significantly greater degree of risk than investments in other tranches of a mortgage-related or other asset-backed instruments.

 

The risk of investing in collateralized loan obligations (“CLOs”), include prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest rate risk. CLOs may 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 quality of the collateral may decline in value or default; (iii) the possibility that the investments in CLOs are subordinate to other classes or tranches thereof; 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.

 

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     7
    


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Important Information About the Funds   (Cont.)  

 

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 markets for lower-rated bonds. Thus, high yield investments increase the chance that a Fund will lose money. PIMCO does not rely solely on credit ratings, and develops its own analysis of issuer credit quality. A Fund may purchase unrated securities (which are not rated by a rating agency) if PIMCO determines that the security is of comparable quality to a rated security that a Fund may purchase. Unrated securities may be less liquid than comparable rated securities and involve the risk that PIMCO may not accurately evaluate the security’s comparative credit quality, which could result in a Fund’s portfolio having a higher level of credit and/or high yield risk than PIMCO has estimated or desires for the Fund, and could negatively impact the Fund’s performance and/or returns. Certain Funds may invest a substantial portion of their assets in unrated securities and therefore may be particularly subject to the associated risks. To the extent that a Fund invests in high yield and/or unrated securities, the Fund’s success in achieving its investment objectives may depend more heavily on the portfolio manager’s creditworthiness analysis than if the Fund invested exclusively in higher-quality and rated securities. 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 obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Defaulted securities are often illiquid and may not be actively traded. Sales 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.

 

Contingent convertible securities (“CoCos”) are a form of hybrid debt security issued primarily by non-U.S. issuers, which have loss absorption mechanisms built into their terms. The risks of investing in CoCos include, without limitation, the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund. CoCos may experience a loss absorption mechanism

trigger event, which would likely be the result of, or related to, the deterioration of the issuer’s financial condition (e.g., a decrease in the issuer’s capital ratio) and status as a going concern. In such a case, with respect to CoCos that provide for conversion into common stock upon the occurrence of the trigger event, the market price of the issuer’s common stock received by the Fund will have likely declined, perhaps substantially, and may continue to decline, which may adversely affect the Fund’s NAV.

 

Variable and floating rate securities may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in 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.

 

As the use of technology has become more prevalent in the course of business, the Funds have become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may, among other things, cause a Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations.

 

Cyber security failures or breaches may result in financial losses to a Fund and its shareholders. These failures or breaches may also result in disruptions to business operations, potentially resulting in financial losses; interference with a Fund’s ability to calculate its NAV, process shareholder transactions or otherwise transact business with shareholders; impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement or other compensation costs; additional compliance and cyber security risk management costs and other adverse consequences. In addition, substantial costs may be incurred in an attempt to prevent any cyber incidents in the future.

 

There is also a risk that cyber security breaches may not be detected. 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

 

 

       
8   PIMCO CLOSED-END FUNDS            


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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. For example, certain investments may be prohibited and/or existing investments may become illiquid (e.g., in the event that transacting in certain existing investments is prohibited), which could cause a Fund to sell other portfolio holdings at a disadvantageous time or price in order to meet shareholder redemptions. The Russian securities market is characterized by limited volume of trading, resulting in difficulty in obtaining accurate prices and trading. 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.

 

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. Historical NAV performance for a Fund may have been positively impacted by fee waivers or expense limitations in place during some or all of the periods shown, if applicable. Future performance (including total return or yield) and distributions may be negatively impacted by the expiration or reduction of any such fee waivers or expense limitations.

 

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

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

 

Fund Name         Commencement
of Operations
    Diversification
Status
 

PIMCO Corporate & Income Opportunity Fund

      12/27/02       Diversified  

PIMCO Corporate & Income Strategy Fund

      12/21/01       Diversified  

PIMCO High Income Fund

      04/30/03       Diversified  

PIMCO Income Strategy Fund

      08/29/03       Diversified  

PIMCO Income Strategy Fund II

      10/29/04       Diversified  

 

An investment in a Fund is not a 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 are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with Pacific Investment Management Company LLC (“PIMCO”) and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s 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 shareholders of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand.

 

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

 

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     9
    


Table of Contents
Important Information About the Funds   (Cont.)  

 

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, on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

 

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

 

The SEC adopted a rule that allows shareholder reports to be delivered to investors by providing access to such reports online free of charge and by mailing a notice that the report is electronically available. Pursuant to the rule, investors may elect to receive all future reports in paper free of charge by contacting their financial intermediary or, if invested directly with a Fund, investors can inform the Fund by calling 844.337.4626. Any election to receive reports in paper will apply to all funds held with the fund complex if invested directly with a Fund or to all funds held in the investor’s account if invested through a financial intermediary, such as a broker-dealer or bank.

 

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

 

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

derivatives risk management program and reporting requirements. These requirements may limit the ability of the Funds to use derivatives and reverse repurchase agreements and similar financing transactions as part of their investment strategies and may increase the cost of the Funds’ investments and cost of doing business, which could adversely affect investors.

 

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

 

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

 

 

       
10   PIMCO CLOSED-END FUNDS            


Table of Contents

PIMCO Corporate & Income Opportunity Fund

 

  Symbol on NYSE -  PTY

 

Allocation Breakdown as of January 31, 2021§

 

Corporate Bonds & Notes

    53.0%  

Loan Participations and Assignments

    15.1%  

Asset-Backed Securities

    8.5%  

Non-Agency Mortgage-Backed Securities

    7.5%  

Short-Term Instruments

    4.1%  

U.S. Government Agencies

    2.6%  

Sovereign Issues

    2.5%  

Preferred Securities

    2.2%  

Municipal Bonds & Notes

    1.2%  

Warrants

    1.2%  

Real Estate Investment Trusts

    1.1%  

Other

    1.0%  
    

% of Investments, at value.

 

  § 

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

 

Fund Information as of January 31, 2021(1)

 

Market Price

    $17.88  

NAV

    $14.14  

Premium/(Discount) to NAV

    26.45%  

Market Price Distribution Rate(2)

    8.72%  

NAV Distribution Rate(2)

    11.03%  

Total Effective Leverage(3)

    44%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2021  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/27/02)
 
Market Price     22.32%       1.33%       18.13%       12.10%       13.93%  
NAV     20.80%       7.95%       14.71%       12.76%       13.81%  

 

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

 

* Cumulative return

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

Short exposure to the long end of the yield curve contributed to absolute performance, as rates increased.

 

»  

Exposure to U.S. mortgage credit contributed to absolute performance, as the asset class posted positive returns.

 

»  

Long exposure to the intermediate portion of the yield curve detracted from absolute performance, as rates increased.

 

»  

Exposure to Argentine emerging market debt detracted from performance, as the sector posted negative returns.

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     11
    


Table of Contents

PIMCO Corporate & Income Strategy Fund

 

  Symbol on NYSE - PCN

 

Allocation Breakdown as of January 31, 2021§

 

Corporate Bonds & Notes

    48.3%  

Loan Participations and Assignments

    10.6%  

Asset-Backed Securities

    10.1%  

Non-Agency Mortgage-Backed Securities

    9.3%  

Preferred Securities

    4.7%  

Short-Term Instruments

    3.8%  

Sovereign Issues

    3.0%  

U.S. Government Agencies

    2.9%  

Municipal Bonds & Notes

    2.7%  

Real Estate Investment Trusts

    1.6%  

Warrants

    1.5%  

Common Stocks

    1.1%  

Convertible Bonds & Notes

    0.4%  
    

% of Investments, at value.

 

  § 

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

Fund Information as of January 31, 2021(1)

 

Market Price

    $17.19  

NAV

    $14.31  

Premium/(Discount) to NAV

    20.13%  

Market Price Distribution Rate(2)

    7.85%  

NAV Distribution Rate(2)

    9.43%  

Total Effective Leverage(3)

    33%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2021  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/21/01)
 

Market Price

    17.38%       (5.06)%       15.25%       11.11%       11.82%  

NAV

    18.13%       6.59%       11.63%       10.85%       11.66%  

 

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

 

* Cumulative return

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

Short exposure to the long end of the yield curve contributed to absolute performance, as rates increased.

 

»  

Exposure to U.S. mortgage credit contributed to absolute performance, as the asset class posted positive returns.

 

»  

Long exposure to the intermediate portion of the yield curve detracted from absolute performance, as rates increased.

 

»  

Exposure to Argentine emerging market debt detracted from performance, as the sector posted negative returns.

 

       
12   PIMCO CLOSED-END FUNDS            


Table of Contents

PIMCO High Income Fund

 

Symbol on NYSE -  PHK

 

Allocation Breakdown as of January 31, 2021§

 

Corporate Bonds & Notes

    45.3%  

Loan Participations and Assignments

    9.5%  

Preferred Securities

    9.0%  

Non-Agency Mortgage-Backed Securities

    8.9%  

Asset-Backed Securities

    7.3%  

Municipal Bonds & Notes

    5.5%  

U.S. Government Agencies

    4.6%  

Short-Term Instruments

    2.9%  

Sovereign Issues

    2.2%  

Real Estate Investment Trusts

    1.9%  

Warrants

    1.4%  

Common Stocks

    1.1%  

Convertible Bonds & Notes

    0.4%  
    

% of Investments, at value.

 

  § 

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

 

Fund Information as of January 31, 2021(1)

 

Market Price

    $6.09  

NAV

    $5.83  

Premium/(Discount) to NAV

    4.46%  

Market Price Distribution Rate(2)

    9.46%  

NAV Distribution Rate(2)

    9.88%  

Total Effective Leverage(3)

    34%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2021  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(04/30/03)
 
Market Price     23.87%       (9.71)%       7.29%       4.79%       8.33%  
NAV     23.05%       4.74%       13.14%       12.15%       11.47%  

 

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

 

* Cumulative return

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

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

 

»  

Short exposure to the long end of the yield curve contributed to absolute performance, as rates increased.

 

»  

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

 

»  

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

 

»  

Long exposure to the intermediate portion of the yield curve detracted from absolute performance, as rates increased.

 

»  

Exposure to Argentine emerging market debt detracted from performance, as the sector posted negative returns.

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     13
    


Table of Contents

PIMCO Income Strategy Fund

 

Symbol on NYSE -  PFL

 

Allocation Breakdown as of January 31, 2021§

 

Corporate Bonds & Notes

    55.4%  

Loan Participations and Assignments

    11.2%  

Asset-Backed Securities

    9.7%  

Non-Agency Mortgage-Backed Securities

    5.0%  

Short-Term Instruments

    4.8%  

Preferred Securities

    3.5%  

Sovereign Issues

    2.9%  

Municipal Bonds & Notes

    2.1%  

U.S. Government Agencies

    1.6%  

Warrants

    1.3%  

Real Estate Investment Trusts

    1.3%  

Other

    1.2%  
    

% of Investments, at value.

 

  § 

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

Fund Information as of January 31, 2021(1)

 

Market Price

    $11.48  

NAV

    $10.60  

Premium/(Discount) to NAV

    8.30%  

Market Price Distribution Rate(2)

    9.41%  

NAV Distribution Rate(2)

    10.19%  

Total Effective Leverage(3)

    36%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2021  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(08/29/03)
 
Market Price     21.62%       6.45%       15.37%       9.87%       7.46%  
NAV     18.55%       8.05%       11.85%       9.99%       7.36%  

 

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

 

* Cumulative return

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

Short exposure to the long end of the yield curve contributed to absolute performance, as rates increased.

 

»  

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

 

»  

Long exposure to the intermediate portion of the yield curve detracted from absolute performance, as rates increased.

 

»  

Exposure to Argentine emerging market debt detracted from performance, as the sector posted negative returns.

 

       
14   PIMCO CLOSED-END FUNDS            


Table of Contents

PIMCO Income Strategy Fund II

 

Symbol on NYSE -  PFN

 

Allocation Breakdown as of January 31, 2021§

 

Corporate Bonds & Notes

    54.5%  

Loan Participations and Assignments

    10.7%  

Non-Agency Mortgage-Backed Securities

    9.0%  

Asset-Backed Securities

    7.8%  

Short-Term Instruments

    4.3%  

Preferred Securities

    3.9%  

Municipal Bonds & Notes

    2.4%  

Sovereign Issues

    1.9%  

U.S. Government Agencies

    1.5%  

Warrants

    1.4%  

Real Estate Investment Trusts

    1.3%  

Common Stocks

    1.0%  

Convertible Bonds & Notes

    0.3%  
    

% of Investments, at value.

 

  § 

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

Fund Information as of January 31, 2021(1)

 

Market Price

    $9.98  

NAV

    $9.41  

Premium/(Discount) to NAV

    6.06%  

Market Price Distribution Rate(2)

    9.62%  

NAV Distribution Rate(2)

    10.20%  

Total Effective Leverage(3)

    36%  

 

 

 

Average Annual Total Return(1) for the period ended January 31, 2021  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(10/29/04)
 
Market Price     18.48%       3.89%       14.54%       10.35%       6.62%  
NAV     16.70%       6.71%       11.48%       10.02%       6.55%  

 

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

 

* Cumulative return

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

Short exposure to the long end of the yield curve contributed to absolute performance, as rates increased.

 

»  

Exposure to U.S. mortgage credit contributed to absolute performance, as the asset class posted positive returns.

 

»  

Long exposure to the intermediate portion of the yield curve detracted from absolute performance, as rates increased.

 

»  

Exposure to Argentine emerging market debt detracted from performance, as the sector posted negative returns.

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     15
    


Table of Contents
Financial Highlights              

 

          Investment Operations     Less Distributions to ARPS(c)           Less Distributions to Common Shareholders(d)  
                                                             
Selected Per Share Data for the Year or Period Ended^:   Net Asset
Value
Beginning
of Year
or Period(a)
    Net
Investment
Income
(Loss)(b)
    Net
Realized/
Unrealized
Gain (Loss)
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
   

Net Increase
(Decrease)

in Net Assets
Applicable
to Common
Shareholders
Resulting
from
Operations

    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total  

PIMCO Corporate & Income Opportunity Fund

                   

08/01/2020 - 01/31/2021+

  $ 12.44     $ 0.66     $ 1.54     $ (0.00   $ 0.00     $ 2.20     $ (0.78   $ 0.00     $ 0.00     $ (0.78

07/31/2020

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

07/31/2019

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

07/31/2018

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

07/31/2017

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

07/31/2016

    14.23       1.30       (0.65     (0.02     0.00       0.63       (1.59     0.00       0.00       (1.59

PIMCO Corporate & Income Strategy Fund

                   

08/01/2020 - 01/31/2021+

  $ 12.76     $ 0.62     $ 1.58     $ (0.00   $ 0.00     $ 2.20     $ (0.68   $ 0.00     $ 0.00     $ (0.68

07/31/2020

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

07/31/2019

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

07/31/2018

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

07/31/2017

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

07/31/2016

    14.75       1.24       (0.84 )(h)      (0.01     0.00       0.39 (i)      (1.37     0.00       0.00       (1.37

PIMCO High Income Fund

                   

08/01/2020 - 01/31/2021+

  $ 5.01     $ 0.29     $ 0.82     $ (0.00   $ 0.00     $ 1.11     $ (0.29   $ 0.00     $ 0.00     $ (0.29

07/31/2020

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

07/31/2019

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

07/31/2018

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

07/31/2017

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

07/31/2016

    7.37       0.74       (0.48 )(h)      (0.00     0.00       0.26 (i)      (1.18     0.00       (0.08     (1.26

PIMCO Income Strategy Fund

                   

08/01/2020 - 01/31/2021+

  $ 9.46     $ 0.46     $ 1.21     $ (0.01   $ 0.00     $ 1.66     $ (0.54   $ 0.00     $ 0.00     $ (0.54

07/31/2020

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

07/31/2019

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

07/31/2018

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

07/31/2017

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

07/31/2016

    11.46       0.88       (0.70     (0.03     0.00       0.15       (1.08     0.00       0.00       (1.08

PIMCO Income Strategy Fund II

                   

08/01/2020 - 01/31/2021+

  $ 8.53     $ 0.40     $ 0.95     $ (0.01   $ 0.00     $ 1.34     $ (0.48   $ 0.00     $ 0.00     $ (0.48

07/31/2020

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

07/31/2019

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

07/31/2018

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

07/31/2017

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

07/31/2016

    10.27       0.87       (0.67     (0.02     0.00       0.18       (1.03     0.00       0.00       (1.03

 

       
16   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Table of Contents
        

 

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

Expenses
Excluding
Interest
Expense
and
Waivers

    Net
Investment
Income (Loss)
    Portfolio
Turnover
Rate
 
 

    

    

 

 

                       
$ 0.28     $ 0.00     $ 0.00     $ 14.14     $ 17.88       22.32   $   1,547,760       1.12 %*      1.12 %*      0.77 %*      0.77 %*      9.98 %*      30
  0.47       (0.00     0.00       12.44       15.34       (8.77     1,248,837       1.30       1.30       0.82       0.82       10.20       34  
  0.15       0.00       0.02       14.66       18.60       14.48       1,291,233       1.35       1.35       0.80       0.80       9.44       22  
  0.12       0.00       0.00       14.80 (j)      17.95       16.78       1,219,515       1.26       1.26       0.81       0.81       8.73       19  
  0.10       0.00       0.00       14.87       16.92       29.18       1,140,768       1.08       1.08       0.83       0.83       8.68       39  
  N/A       N/A       0.00       13.27       14.75       16.09       946,843       0.89       0.89       0.85       0.85       9.93       45  
                       
$ 0.03     $ 0.00     $ 0.00     $ 14.31     $ 17.19       17.38   $ 578,784       1.20 %*      1.20 %*      0.88 %*      0.88 %*      9.25 %*      25
  N/A       N/A       0.00       12.76       15.29       (7.72     509,488       1.57       1.57       0.87       0.87       9.57       31  
  N/A       N/A       0.10       14.94       18.08       9.20       591,931       1.60       1.60       0.94       0.94       8.39       18  
  N/A       N/A       0.00       14.90 (j)      18.09       9.61       586,592       1.36       1.36       0.94       0.94       7.97       20  
  N/A       N/A       0.00       15.32       17.92       30.63       599,266       1.17       1.17       0.93       0.93       7.65       38  
  N/A       N/A       0.51       14.28       15.43       24.21       553,569       1.10       1.10       1.02       1.02       8.91       43  
                       
$ N/A     $ N/A     $ 0.00     $ 5.83     $ 6.09       23.87   $ 777,282       1.18 %*      1.18 %*      0.86 %*      0.86 %*      10.70 %*      39
  N/A       N/A       0.00       5.01       5.18       (27.55     664,144       1.73       1.73       0.86       0.86       11.42       40  
  N/A       N/A       0.04       6.38       8.03       3.57       835,988       1.86       1.86       0.91       0.91       9.74       20  
  N/A       N/A       0.00       6.54 (j)      8.67       13.13       847,052       1.48       1.48       0.90       0.90       9.30       27  
  N/A       N/A       0.00       6.90       8.71       (1.45     884,912       1.25       1.25       0.90       0.90       10.08       32  
  N/A       N/A       0.26       6.63       10.03       19.92       841,102       1.08       1.08       0.95       0.95       11.20       42  
                       
$ 0.03     $ 0.00     $ 0.00     $ 10.61     $ 11.48       21.62   $ 351,459       1.66 %*      1.66 %*      1.36 %*      1.36 %*      9.28 %*      21
  0.09       (0.00     0.00       9.46       9.95       (7.65     295,167       1.69       1.69       1.21       1.21       10.03       21  
  0.06       0.00       0.03       11.00       11.99       8.10       305,453       1.69       1.69       1.18       1.18       8.39       17  
  N/A       N/A       0.00       11.14 (j)      12.23       10.37       284,677       1.48       1.48       1.17       1.17       7.67       21  
  N/A       N/A       0.00       11.60       12.17       28.11       294,525       1.35       1.35       1.17       1.17       8.01       40  
  N/A       N/A       0.00       10.53       10.48       12.41       266,347       1.17       1.17       1.13       1.13       8.49       38  
                       
$   0.02     $ 0.00     $ 0.00     $ 9.41     $ 9.98       18.48   $ 700,777       1.57 %*      1.57 %*      1.28 %*      1.28 %*      8.96 %*      17
  0.07         (0.00       0.00       8.53       8.88       (7.75     605,851       1.62       1.62       1.15       1.15       9.49       21  
  0.04       0.00       0.01       9.91       10.70       11.03       632,927       1.66       1.66       1.12       1.12       8.57       17  
  N/A       N/A       0.00         10.07 (j)        10.70       9.19       600,890       1.41       1.41       1.10       1.10       7.79       18  
  N/A       N/A       0.00       10.33       10.76       26.32       612,310       1.26       1.26       1.09       1.09       8.15       26  
  N/A       N/A       0.00       9.42       9.39       11.92       556,840       1.14       1.14       1.07       1.07       9.25       38  

 

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     17
    


Table of Contents
Financial Highlights   (Cont.)  

 

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

PIMCO Corporate & Income Opportunity Fund

       
8/1/2020 - 1/31/2021+     212,650,000       206,958       25,000       N/A  
7/31/2020     212,650,000       171,815       25,000       N/A  
7/31/2019     212,650,000       176,730       25,000       N/A  
7/31/2018     237,950,000       153,072       25,000       N/A  
7/31/2017     237,950,000       144,819       25,000       N/A  
7/31/2016     237,950,000       124,468       25,000       N/A  

PIMCO Corporate & Income Strategy Fund

       
8/1/2020 - 1/31/2021+     23,525,000       640,063       25,000       N/A  
7/31/2020     23,525,000       566,423       25,000       N/A  
7/31/2019     23,525,000       653,838       25,000       N/A  
7/31/2018     55,525,000       289,023       25,000       N/A  
7/31/2017     55,525,000       294,755       25,000       N/A  
7/31/2016     55,525,000       274,223       25,000       N/A  

PIMCO High Income Fund

       
8/1/2020 - 1/31/2021+     58,050,000       359,740       25,000       N/A  
7/31/2020     58,050,000       311,018       25,000       N/A  
7/31/2019     58,050,000       384,900       25,000       N/A  
7/31/2018     101,975,000       232,587       25,000       N/A  
7/31/2017     101,975,000       241,894       25,000       N/A  
7/31/2016     101,975,000       231,185       25,000       N/A  

PIMCO Income Strategy Fund

       
8/1/2020 - 1/31/2021+     45,200,000       219,355       25,000       N/A  
7/31/2020     45,200,000       188,225       25,000       N/A  
7/31/2019     45,200,000       193,873       25,000       N/A  
7/31/2018     51,275,000       163,725       25,000       N/A  
7/31/2017     51,275,000       168,552       25,000       N/A  
7/31/2016     51,275,000       154,837       25,000       N/A  

PIMCO Income Strategy Fund II

       
8/1/2020 - 1/31/2021+     87,425,000       225,350       25,000       N/A  
7/31/2020     87,425,000       198,210       25,000       N/A  
7/31/2019     87,425,000       205,928       25,000       N/A  
7/31/2018     92,450,000       187,429       25,000       N/A  
7/31/2017     92,450,000       190,527       25,000       N/A  
7/31/2016     92,450,000       175,544       25,000       N/A  

 

^

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

+

Unaudited

*

Annualized

(a) 

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

(b) 

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

(c) 

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

(d) 

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

(e) 

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

(f) 

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

(g) 

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

(h) 

The amount previously reported in the Funds’ 2016 Annual Report has been revised due to a misstatement. The misstatement was not considered material to the prior period Annual Report. In the Funds’ 2016 Annual Report, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund reported amounts of (0.33) and (0.22), respectively.

(i) 

The amount previously reported in the Funds’ 2016 Annual Report has been revised due to a misstatement. The misstatement was not considered material to the prior period Annual Report. In the Funds’ 2016 Annual Report, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund reported amounts of 0.90 and 0.52, respectively.

(j) 

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

1 

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

2 

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

3 

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

 

       
18   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Table of Contents
Statements of Assets and Liabilities          January 31, 2021 (Unaudited)

 

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

Assets:

         

Investments, at value

                                       

Investments in securities*

  $ 2,593,505     $ 854,010     $ 1,144,023     $ 532,086     $ 1,045,414  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    2,655       1,308       4,637       679       1,546  

Over the counter

    4,922       642       813       475       912  

Cash

    85       175       1       37       294  

Deposits with counterparty

    40,601       16,054       32,676       10,836       19,270  

Foreign currency, at value

    4,022       1,245       1,517       779       1,482  

Receivable for investments sold

    40,411       5,589       20,336       7,469       10,046  

Receivable for TBA investments sold

    26,887       16,736       62,482       0       0  

Receivable for Fund shares sold

    1,594       95       0       190       667  

Interest and/or dividends receivable

    23,753       7,633       11,370       4,855       9,636  

Other assets

    506       346       7       288       264  

Total Assets

    2,738,941       903,833       1,277,862       557,694       1,089,531  

Liabilities:

         

Borrowings & Other Financing Transactions

                                       

Payable for reverse repurchase agreements

  $ 793,569     $ 252,169     $ 313,197     $ 141,837     $ 274,431  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    1,861       889       3,800       482       1,098  

Over the counter

    8,280       186       439       238       427  

Payable for investments purchased

    55,718       9,519       10,080       5,527       5,303  

Payable for TBA investments purchased

    49,440       25,022       93,042       0       0  

Payable for unfunded loan commitments

    34,522       4,302       6,602       5,663       5,193  

Deposits from counterparty

    20,044       4,475       8,457       3,903       8,189  

Distributions payable to common shareholders

    14,159       4,531       6,397       2,969       5,930  

Distributions payable to auction rate preferred shareholders

    5       0       1       8       19  

Accrued management fees

    873       372       486       358       682  

Other liabilities

    60       59       29       50       57  

Total Liabilities

    978,531       301,524       442,530       161,035       301,329  

Auction Rate Preferred Shares^

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

Net Assets Applicable to Common Shareholders

  $ 1,547,760     $ 578,784     $ 777,282     $ 351,459     $ 700,777  

Net Assets Applicable to Common Shareholders Consist of:

         

Par value^^

  $ 1     $ 0     $ 1     $ 0     $ 1  

Paid in capital in excess of par

    1,667,841       601,092       991,407       372,698       755,833  

Distributable earnings (accumulated loss)

    (120,082     (22,308     (214,126     (21,239     (55,057

Net Assets Applicable to Common Shareholders

  $ 1,547,760     $ 578,784     $ 777,282     $ 351,459     $ 700,777  

Net Asset Value Per Common Share(a)

  $ 14.14     $ 14.31     $ 5.83     $ 10.61     $ 9.41  

Common Shares Outstanding

    109,465       40,436       133,278       33,137       74,464  

Auction Rate Preferred Shares Issued and Outstanding

    9       1       2       2       3  

Cost of investments in securities

  $   2,531,616     $   827,394     $   1,136,691     $   516,920     $   1,011,713  

Cost of foreign currency held

  $ 3,955     $ 1,147     $ 1,064     $ 717     $ 1,361  

Cost or premiums of financial derivative instruments, net

  $ (16,190   $ 980     $ 111,650     $ 1,722     $ 6,475  

* Includes repurchase agreements of:

  $ 87,188     $ 30,067     $ 30,753     $ 24,825     $ 39,793  

 

  

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

^ 

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

^^ 

($0.00001 per share)

(a) 

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

 

         SEMIANNUAL REPORT     |     JANUARY 31, 2021     19
    


Table of Contents
Statements of Operations              

 

Six Months Ended January 31, 2021 (Unaudited)                              
(Amounts in thousands)   PIMCO
Corporate &
Income
Opportunity
Fund
    PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income Fund
    PIMCO Income
Strategy
Fund
    PIMCO Income
Strategy
Fund II
 

Investment Income:

         

Interest

  $ 76,277     $ 27,502     $ 40,790     $ 17,266     $ 33,504  

Dividends, net of foreign taxes*

    718       562       1,652       275       583  

Total Income

    76,995       28,064       42,442       17,541       34,087  

Expenses:

         

Management fees

    5,195       2,270       2,933       2,106       4,015  

Trustee fees and related expenses

    96       36       51       22       46  

Interest expense

    2,396       855       1,135       487       939  

Auction agent fees and commissions

    97       25       39       27       49  

Auction rate preferred shares related expenses

    15       37       29       29       29  

Miscellaneous expense

    4       6       38       3       6  

Total Expenses

    7,803       3,229       4,225       2,674       5,084  

Net Investment Income (Loss)

    69,192       24,835       38,217       14,867       29,003  

Net Realized Gain (Loss):

         

Investments in securities

    (48,710     (23,444     (23,858     (11,856     (26,990

Exchange-traded or centrally cleared financial derivative instruments

    8,242       4,870       8,434       2,328       5,855  

Over the counter financial derivative instruments

    (13,112     (7,422     (10,757     (5,192     (10,333

Foreign currency

    (898     (194     (633     (382     (557

Net Realized Gain (Loss)

    (54,478       (26,190     (26,814       (15,102     (32,025

Net Change in Unrealized Appreciation (Depreciation):

         

Investments in securities

    189,406       81,336       126,107       48,464       91,018  

Exchange-traded or centrally cleared financial derivative instruments

    9,642       3,640       3,326       2,305       4,176  

Over the counter financial derivative instruments

    15,372       4,076       4,438       2,922       5,798  

Foreign currency assets and liabilities

    1,646       231       2,329       268       480  

Net Change in Unrealized Appreciation (Depreciation)

    216,066       89,283       136,200       53,959         101,472  

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ 230,780     $ 87,928     $   147,603     $ 53,724     $ 98,450  

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

  $ (185   $ (15   $ (40   $ (361   $ (699

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

  $   230,595     $ 87,913     $   147,563     $ 53,363     $ 97,751  

* Foreign tax withholdings - Dividends

  $ 21     $ 9     $ 9     $ 5     $ 51  

 

  

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

 

       
20   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Table of Contents

 

 

 

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         SEMIANNUAL REPORT     |     JANUARY 31, 2021     21
    


Table of Contents
Statements of Changes in Net Assets              

 

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

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 69,192     $ 128,584     $ 24,835     $ 52,161  

Net realized gain (loss)

    (54,478     (192,954     (26,190     (72,741

Net change in unrealized appreciation (depreciation)

    216,066       (37,562     89,283       (10,212

Net Increase (Decrease) in Net Assets Resulting from Operations

    230,780       (101,932     87,928       (30,792

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

    (185     (4,901     (15     (408

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

    230,595       (106,833     87,913       (31,200

Distributions to Common Shareholders:

       

From net investment income and/or net realized capital gains

    (81,951     (149,985     (27,039     (56,092

Tax basis return of capital

    0       0       0       0  

Total Distributions to Common Shareholders(a)

    (81,951     (149,985