Table of Contents

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: 811-22673

PIMCO Dynamic Income Fund

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

William G. Galipeau

Treasurer, Principal Financial & Accounting Officer

650 Newport Center Drive

Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

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

Date of fiscal year end: March 31, 2015

Date of reporting period: September 30, 2014

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.

---

Table of Contents

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).

---

Table of Contents

 

Your Global Investment Authority

 

 

 

Semiannual Report

September 30, 2014

 

PIMCO Global StocksPLUS^® & Income Fund

 

PIMCO High Income Fund

 

PIMCO Dynamic Income Fund

 

 

---

Table of Contents

Table of Contents

 

						Page
Chairman/President Letter							2
Important Information About the Funds							5
Financial Highlights							16
Statements of Assets and Liabilities							18
Consolidated Statement of Assets and Liabilities							20
Statements of Operations							22
Consolidated Statement of Operations							23
Statements of Changes in Net Assets							24
Consolidated Statements of Changes in Net Assets							26
Statements of Cash Flows							27
Consolidated Statement of Cash Flows							28
Notes to Financial Statements							73
Glossary							99
Shareholder Meeting Results							100
Changes to Boards of Trustees/Changes to Portfolio Managers							101
Investment Strategy Updates							102
Matters Relating to the Trustees’ Consideration of the Investment Management and Portfolio Management Agreements for PIMCO High Income Fund and PIMCO Global StocksPLUS® & Income Fund							103
Fund		Fund Summary				Schedule of Investments
PIMCO Global StocksPlus® & Income Fund			10				29
PIMCO High Income Fund			12				45
PIMCO Dynamic Income Fund			14				57

---

Table of Contents

Letter from the Chairman of the Board & President

 

Dear Shareholder:

 

As previously announced, on September 26, 2014, prior to the close of the reporting period, William “Bill” Gross, PIMCO’s former Chief Investment Officer (“CIO”) and co-founder, resigned from the firm. PIMCO’s Managing Directors elected Daniel Ivascyn to serve as Group Chief Investment Officer (“Group CIO”). In addition, PIMCO appointed Andrew Balls, CIO Global; Mark Kiesel, CIO Global Credit; Virginie Maisonneuve, CIO Global Equities; Scott Mather, CIO U.S. Core Strategies; and Mihir Worah, CIO Real Return and Asset Allocation. Outside of the reporting period on November 3, 2014, PIMCO announced that Marc Seidner will return to the firm effective November 12 in a new role as CIO Non-traditional Strategies and Head of Portfolio Management in the New York office. Under this leadership structure, Andrew and Mihir have additional managerial responsibility for PIMCO’s Portfolio Management group and trade floor activities globally. Andrew will oversee Portfolio Management and trade floor activities in Europe and Asia-Pacific, and Mihir will oversee Portfolio Management and trade floor activities in the U.S. Furthermore, effective as of September 26, 2014, Alfred Murata and Mohit Mittal replaced Mr. Gross as portfolio managers for PIMCO High Income Fund. There have not been any changes to the portfolio management of PIMCO Global StocksPLUS^® & Income Fund or PIMCO Dynamic Income Fund.

 

Douglas Hodge, PIMCO’s Chief Executive Officer, and Jay Jacobs, PIMCO’s President, will continue to serve as the firm’s senior executive leadership team, spearheading PIMCO’s business strategy, client service and the firm’s operations.

 

These appointments are a further evolution of the structure that PIMCO established earlier in 2014, reflecting our belief that the best approach for PIMCO’s clients and our firm is an investment leadership team of seasoned, highly skilled investors overseeing all areas of PIMCO’s investment activities.

 

During his 43 years at PIMCO, Mr. Gross made great contributions to building the firm and delivering value to PIMCO’s clients. Over this period, PIMCO developed into a global asset manager, expanding beyond core fixed income, now encompassing nearly 2,500 employees across 13 offices, including over 250 portfolio managers. Mr. Gross was also responsible for starting PIMCO’s robust investment process, with a focus on long-term macroeconomic views and bottom-up security selection — a process that is well institutionalized and will continue into PIMCO’s future.

 

For the six-month reporting period ended September 30, 2014

 

Global economic growth was mixed during the fiscal six-month reporting period ended September 30, 2014. Against this backdrop and a host of geopolitical issues, U.S. equities generated positive returns, whereas international developed equities produced less robust results. The U.S. bond market posted a modest gain during the reporting period.

 

2		PIMCO CLOSED-END FUNDS

---

Table of Contents

The Standard & Poor’s 500 (“S&P 500”) Index, a proxy for the U.S. stock market, advanced 6.42%; the MSCI Europe, Australasia and Far East Index (“EAFE”) declined 2.03% in U.S. dollar terms; and the BofA Merrill Lynch U.S. High Yield Master II Index increased 0.59% for the six months ended September 30, 2014. The broad bond market, as measured by the Barclays U.S. Aggregate Bond Index, rose 2.21% while the Barclays U.S. Treasury Bond Index returned 1.70% during the reporting period.

 

After several years of positive growth, severe winter weather in parts of the country appeared to be a headwind for the U.S. economy in early 2014. Looking back, gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at a 3.5% annual pace during the fourth quarter of 2013. According to the U.S. Commerce Department, GDP then contracted at an annual pace of 2.1% during the first quarter of 2014. However, this was a temporary setback, as GDP expanded at a 4.6% annual pace during the second quarter of 2014. This represented the strongest growth rate since the fourth quarter of 2011. According to the Commerce Department’s initial estimate, released on October 30, 2014, GDP expanded at an annual pace of 3.5% during the third quarter.

 

Economic growth in non-U.S. developed countries was mixed during the reporting period. Growth in the eurozone was tepid and falling inflation triggered concerns of deflation in the region. Against this backdrop, in June 2014 the European Central Bank (“ECB”) cut interest rates from 0.25% to a new low of 0.15% and announced it would charge commercial banks 0.10% to keep money at the ECB. In September 2014, the ECB reduced rates to another record low of 0.05% and announced that it would begin charging commercial banks 0.20% to keep money at the ECB. Japan’s economy grew sharply during the first quarter of 2014, partially driven by increased spending ahead of the country’s April 1, 2014 sales tax increase. Japan’s economy then contracted during the second quarter of 2014.

 

Outlook

 

PIMCO’s forecast for the next 12 months in the U.S. predicts a continuation of the economic recovery. With the ongoing assistance of easy monetary policy, combined with healthy private financial sector balance sheets, we believe the U.S. economy is poised to grow between 2.5% and 3.0% in the coming calendar year. We expect to see corporate capital expenditures accelerate on the back of rising pricing power and expected returns on newly invested capital. We expect very gradually rising wages and product prices, which will allow the Fed to maintain its accommodative monetary policy for another 12 months or so. One potential wildcard for the economy in both the U.S. and abroad is geopolitical issues in Ukraine, the Middle East and elsewhere.

 

While we believe the U.S. cyclical outlook is becoming more sure-footed and self-sustaining, our cyclical growth and inflation outlooks for the eurozone and Japan

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		3

---

Table of Contents

Letter from the Chairman of the Board & President (Cont.)

 

remain captive to significant policy dissonance and geopolitical risk. In the eurozone, expansionary fiscal policy has largely been absent in the post-financial crisis. We expect the ECB to continue to ease monetary policy over the cyclical horizon via some form of quantitative easing during 2015. In Japan, policy dissonance is not quite as pronounced as in the eurozone, but demographic conditions and debt deflation are somewhat worse. We expect the Bank of Japan to continue its current rapid pace of balance sheet expansion for the balance of 2014, with some possibility of faster expansion in 2015, depending on the global economic environment.

 

On the following pages of this PIMCO Closed-End Funds Semi-Annual Report, please find specific details regarding investment performance and a discussion of factors that most affected performance over the six-month reporting period ended September 30, 2014.

 

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

 

We remain dedicated to serving your investment needs.

 

Sincerely,

 

Hans W. Kertess Chairman of the Board of Trustees		Peter G. Strelow President, Principal Executive Officer

 

4		PIMCO CLOSED-END FUNDS

---

Table of Contents

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 held by a Fund are likely to decrease in value. A number of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions, etc.). Accordingly, changes in interest rates can be sudden, and there is no guarantee that Fund Management will anticipate such movement.

 

As of the date of this report, interest rates in the U.S. are at or near historically low levels. As such, bond funds may currently face an increased exposure to the risks associated with rising interest rates. This is especially true since the Federal Reserve Board has begun tapering its quantitative easing program. Further, while the U.S. bond market has steadily grown over the past three decades, dealer inventories of corporate bonds have remained relatively stagnant. As a result, there has been a significant reduction in the ability of dealers to “make markets” in corporate bonds. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets, which could result in increased losses to a Fund. Bond funds and individual bonds with a longer duration (a measure of the sensitivity of a security’s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. In addition, in the current low interest rate environment, the market price of the Funds’ common shares may be particularly sensitive to changes in interest rates or the perception that there will be a change in interest rates.

 

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

 

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

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		5

---

Table of Contents

Important Information About the Funds (Cont.)

 

 

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

 

A Fund’s investments in and exposure to foreign securities involve special risks. For example, the value of these investments may decline in response to unfavorable political and legal developments, unreliable or untimely information or economic and financial instability. Foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. issuers. The securities markets of many 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 the Fund’s investments in foreign securities. In the event of nationalization, expropriation or other confiscation, the Fund could lose its entire investment in foreign securities. These risks 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 issuer.

 

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among others, credit risk, interest rate risk, variable and floating rate securities risk, and, as applicable, risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below-investment grade securities. In the case of a loan participation or assignment, a Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. In the event of the insolvency of the lender selling a loan participation, a Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans. To the extent that a Fund originates a loan, it may be responsible for all or a substantial portion of the expenses associated with initiating the loan. This may include significant legal and due diligence expenses, which will be indirectly borne by the Fund and its shareholders. A Fund may pay fees and expenses associated with originating a loan, including significant legal and due diligence expenses, irrespective of whether the loan transaction is ultimately consummated or closed.

 

6		PIMCO CLOSED-END FUNDS

---

Table of Contents

 

 

Mortgage-related and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, if a Fund holds mortgage-related securities, it may 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.

 

High-yield bonds (commonly referred to as “junk bonds”) typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Further, markets for lower-rated bonds are typically less liquid than for higher-rated bonds, and public information is usually less abundant in such markets. Thus, high yield investments increase the chance that a Fund will lose money. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. The Funds may hold defaulted securities that may involve special considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material.

 

Certain Funds may invest in securities and instruments that are economically tied to Russia. Investments in Russia are subject to political, economic, legal, market and currency risks, as well as 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 a Fund’s performance and/or ability to achieve its investment objective. For example, certain transactions may be prohibited and/or existing investments may become illiquid (e.g., in the event that transacting in certain existing investments is prohibited).

 

The common shares of the Funds trade on the New York Stock Exchange. As with any stock, the price of a Fund’s common shares will fluctuate with market conditions and other factors. If you sell your common shares of a Fund, the price received may be more or less than your original investment. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. The common shares of a Fund may trade at a price that is less than the initial offering price and/or the net asset value of such shares.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		7

---

Table of Contents

Important Information About the Funds (Cont.)

 

 

 

The Funds may be subject to various risks in addition to those described above. Some of these risks may include, but are not limited to, the following: asset allocation risk, credit risk, stressed securities risk, distressed and defaulted securities risk, corporate bond risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, extension risk, prepayment risk, privately issued mortgage-related securities risk, mortgage market/subprime risk, foreign (non-U.S.) investment risk, emerging markets risk, currency risk, redenomination risk, non-diversification risk, management risk, municipal bond risk, inflation-indexed security risk, senior debt risk, loans, participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, foreign (non-U.S.) government securities risk, valuation risk, segregation and cover risk, focused investment risk, credit default swaps risk, event-linked securities risk, counterparty risk, preferred securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory risk, tax risk, recent economic conditions risk, market disruptions and geopolitical risk, potential conflicts of interest-allocation of investment opportunities, repurchase agreements risk, securities lending risk, zero-coupon bond and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk and convertible securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this Report.

 

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

 

On each individual Fund Summary page in this Shareholder Report the Common Share Average Annual Total Return table and Common Share Cumulative Returns (if applicable) measure 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 the Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends. Performance shown is net of fees and expenses.

 

The following table discloses the commencement of operations of each Fund:

 

Fund Name				Commencement of Operations
PIMCO Global StocksPlus® & Income Fund					05/31/05
PIMCO High Income Fund					04/30/03
PIMCO Dynamic Income Fund					05/30/12

 

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.

 

8		PIMCO CLOSED-END FUNDS

---

Table of Contents

 

 

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

 

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

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		9

---

Table of Contents

PIMCO Global StocksPLUS® & Income Fund		Symbol on NYSE -  PGP

 

 

Average Annual Total Return for the period ended September 30, 2014 (1)
		Six Month*				1 Year				5 Year				Commencement of Operations (05/31/05)
Market Price			(9.98%	)			(0.65%	)			16.54%				13.05%
NAV			2.62%				14.01%				25.52%				13.30%

 

All Fund returns are net of fees and expenses.

 

*	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. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

(2)

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

(3)

Represents regulatory leverage outstanding, as a percentage of total managed assets. Regulatory leverage may include preferred shares, reverse repurchase agreements, and other borrowings (collectively “Leverage”). Total managed assets refer to total assets (including assets attributable to Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Leverage).

 

10		PIMCO CLOSED-END FUNDS

---

Table of Contents

Portfolio Insights

 

»

The global developed equity markets produced mixed results during the six months ended September 30, 2014. Over this period, the U.S. stock market returned 6.42%, as measured by the S&P 500 Index. Solid demand and corporate profits that often exceeded expectations supported U.S. equities. International developed equities, as measured by the MSCI EAFE Index, declined 2.03% for the six months ended September 30, 2014. They were negatively impacted by slowing growth in many countries, other than the U.S., and increasing risk aversion, or “flight to quality.”

 

»

The overall fixed income market generated a modest gain during the reporting period. The fixed income market was volatile at times as investor sentiment was impacted by incoming economic data, changing expectations regarding future monetary policy and a number of geopolitical issues. All told, longer-term U.S. Treasury yields declined during the six-month period, with the yield on the benchmark 10-year Treasury bond falling from 2.72% to 2.49%. Against this backdrop, the overall taxable fixed income market, as measured by the Barclays U.S. Aggregate Bond Index, gained 2.21% during the six months ended September 30, 2014.

 

»

Holdings of agency and non-agency mortgage-backed securities contributed to performance as these securities benefited from continued improvement in the U.S. housing market. The Fund’s currency strategies, led by relative short euro and yen positions, contributed to returns as those currencies depreciated versus the U.S. dollar. The Fund benefited from earning a higher yield than the money market financing rate priced into the equity index derivatives that were used to capture the returns of the S&P 500 Index and MSCI EAFE Index.

 

»

Returns from holdings of high yield securities were positive but modest, as coupon income was partially offset by lower prices. An allocation to select emerging market corporate bonds also contributed modestly to returns.

 

»

A curve-steepening strategy detracted from performance, as the U.S. Treasury yield curve flattened, with longer-term rates declining, whereas short-term rates increased. A defensive option strategy, involving the sale of call options and purchase of puts on S&P 500 futures contracts, hurt performance as U.S. equities rallied during the six-month reporting period.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		11

---

Table of Contents

PIMCO High Income Fund		Symbol on NYSE -  PHK

 

 

Average Annual Total Return for the period ended September 30, 2014 (1)
		Six Month*				1 Year				5 Year				10 Year				Commencement of Operations (04/30/03)
Market Price			(1.46%	)			10.41%				15.83%				12.28%				11.82%
NAV			11.66%				25.16%				22.64%				11.68%				12.24%

 

All Fund returns are net of fees and expenses.

 

*	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. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

(2)

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

(3)

Represents regulatory leverage outstanding, as a percentage of total managed assets. Regulatory leverage may include preferred shares, reverse repurchase agreements, and other borrowings (collectively “Leverage”). Total managed assets refer to total assets (including assets attributable to Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Leverage).

 

12		PIMCO CLOSED-END FUNDS

---

Table of Contents

Portfolio Insights

 

»

The overall fixed income market generated a modest gain during the reporting period. The fixed income market was volatile at times as investor sentiment was impacted by incoming economic data, changing expectations regarding future monetary policy and a number of geopolitical issues. All told, longer-term U.S. Treasury yields declined during the six-month period, with the yield on the benchmark 10-year Treasury bond falling from 2.72% to 2.49%. Against this backdrop, the overall taxable fixed income market, as measured by the Barclays U.S. Aggregate Bond Index, gained 2.21% during the six months ended September 30, 2014.

 

»

After a strong start, high yield bonds gave back a large portion of their gains as the reporting period progressed. All told, the U.S. high yield corporate bond market returned 0.49% during the six-month period, as measured by the Barclays U.S. Corporate High Yield Index. The high yield market initially benefited from solid investor demand and low defaults. While fundamentals did not meaningfully change, investor risk aversion and, admittedly, tighter valuations, triggered selloffs in July and September 2014.

 

»

The Fund’s allocation to non-agency mortgage-backed securities was a significant contributor to strong absolute return of the Fund. They were supported by positive supply/demand technicals and continuously improving home prices. The Fund’s exposure to select bank capital securities was rewarded given their attractive income. The Fund’s emerging market debt exposure was beneficial for performance as their yields declined. Elsewhere, the Fund’s exposure to taxable municipal bonds was also additive to performance, as the broader municipal market has done very well over the past six months on general improvement in outlook and decline in Treasury yields.

 

»

Despite the Fund’s short exposure to the long end part of the curve, which has hurt the performance, overall increased duration exposure with interest rate swaps contributed positively to performance as Treasury rates declined.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		13

---

Table of Contents

PIMCO Dynamic Income Fund		Symbol on NYSE -  PDI

 

 

Average Annual Total Return for the period ended September 30, 2014 (1)
		Six Month*				1 Year				Commencement of Operations (05/30/12)
Market Price			7.81%				23.51%				21.59%
NAV			8.29%				22.84%				27.89%

 

All Fund returns are net of fees and expenses.

 

*	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. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

(2)

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

(3)

Represents regulatory leverage outstanding, as a percentage of total managed assets. Regulatory leverage may include preferred shares, reverse repurchase agreements, and other borrowings (collectively “Leverage”). Total managed assets refer to total assets (including assets attributable to Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Leverage).

 

14		PIMCO CLOSED-END FUNDS

---

Table of Contents

Portfolio Insights

 

»

The overall fixed income market generated a modest gain during the reporting period. The fixed income market was volatile at times as investor sentiment was impacted by incoming economic data, changing expectations regarding future monetary policy and a number of geopolitical issues. All told, longer-term U.S. Treasury yields declined during the six-month period, with the yield on the benchmark 10-year Treasury bond falling from 2.72% to 2.49%. Against this backdrop, the overall taxable fixed income market, as measured by the Barclays U.S. Aggregate Bond Index, gained 2.21% during the six months ended September 30, 2014.

 

»

After a strong start, high yield bonds and emerging market debt gave back a portion of their gains as the reporting period progressed. All told, the global high yield corporate bond market, as measured by the Barclays U.S. Corporate High Yield Index, returned 0.49%, compared to the global credit market advance of 2.90%, as measured by the Barclays Global Credit Hedged USD Index. In contrast, emerging market debt gained 3.69% during the reporting period, as measured by the JPMorgan EMBI Global Index.

 

»

The Fund’s allocation to non-agency mortgage-backed securities was a significant contributor to results. They were supported by positive supply/demand technicals and continuously improving home prices. The Fund’s emerging market debt exposure was beneficial to performance as yields declined. Elsewhere, the Fund’s security selection in corporate bonds was additive for results as several pipeline operators outperformed. This, coupled with such bonds’ attractive yields, helped the Fund to generate income.

 

»

The Fund’s yield curve positioning detracted from performance. Negative exposure to the long end of the yield curve was negative, as longer-term rates declined during the reporting period.

 

»

The Fund’s exposure to financial credits did not meaningfully impact performance during the reporting period. The incremental yield offered by these securities was offset by spread widening.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		15

---

Table of Contents

Financial Highlights

 

Selected Per Common Share Data for the Year or Period Ended:		Net Asset Value Beginning of Year or Period				Net Investment Income (a)				Net Realized/ Unrealized Gain (Loss)				Total Income (Loss) from Investment Operations				Dividends on Preferred Shares from Net Investment Income				Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Investment Operations				Distribution to Common Shareholders from Net Investment Income				Distribution to Common Shareholders from Realized Capital Gain
PIMCO Global StocksPLUS® & Income Fund
04/01/2014 - 09/30/2014+		$	14.72			$	0.62			$	(0.22	)		$	0.40				N/A			$	0.40			$	(1.10	)		$	0.00
03/31/2014			14.32				1.39				1.21				2.60				N/A				2.60				(2.20	)			0.00
03/31/2013			12.57				1.38				2.57				3.95				N/A				3.95				(2.20	)			0.00
03/31/2012			14.88				1.61				(1.72	)			(0.11	)			N/A				(0.11	)			(2.20	)			0.00
03/31/2011			12.52				1.75				2.81				4.56				N/A				4.56				(2.20	)			0.00
03/31/2010			6.59				1.24				6.89				8.13				N/A				8.13				(1.66	)			0.00
PIMCO High Income Fund
04/01/2014 - 09/30/2014+		$	8.23			$	0.53			$	0.40			$	0.93			$	(0.00	)^		$	0.93			$	(0.73	)		$	0.00
03/31/2014			8.65				0.84				0.20				1.04				(0.00	)^			1.04				(1.35	)			0.00
03/31/2013			7.87				0.81				1.43				2.24				(0.00	)^			2.24				(1.42	)			0.00
03/31/2012			9.42				0.96				(1.05	)			(0.09	)			(0.00	)^			(0.09	)			(1.39	)			0.00
03/31/2011			8.73				1.13				1.03				2.16				(0.01	)			2.15				(1.46	)			0.00
03/31/2010			3.49				1.13				5.58				6.71				(0.01	)			6.70				(1.39	)			0.00
PIMCO Dynamic Income Fund
04/01/2014 - 09/30/2014+		$	32.11			$	1.68			$	0.95			$	2.63				N/A			$	2.63			$	(1.15	)		$	0.00
03/31/2014			30.69				3.70				1.24				4.94				N/A				4.94				(3.29	)			(0.23	)
05/30/2012 - 03/31/2013			23.88				2.79				6.50				9.29				N/A				9.29				(2.18	)			(0.27	)

 

+

Unaudited

*	Annualized

^	Reflects an amount rounding to less than one cent.

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

(b)

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

(c)	Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.

(d)	Interest expense primarily relates to participation in reverse repurchase agreement transactions.

 

16		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Tax Basis Return of Capital				Total Distributions to Common Shareholders from Net Investment Income				Offering Cost Charged to Paid in Capital in Excess Par				Net Assets Value End of Year or Period				Market Price End of Year or Period				Total Investment Return  (b)				Net Assets Applicable to Common Share holders				Ratio of Expenses to Average Net Assets (c)(d)				Ratio of Expenses to Average Net Assets Excluding Interest Expense (c)				Ratio of Net Investment Income to Average Net Assets				Preferred Shares Assets Coverage Per Share				Portfolio Turnover Rate
$	0.00			$	(1.10	)			N/A			$	14.02			$	20.33				(9.98	%)		$	146,661				2.16	%*			1.74	%*			8.37	%*			N/A				69	%
	0.00				(2.20	)			N/A				14.72				23.67				19.44				153,393				1.94				1.67				9.62				N/A				197
	0.00				(2.20	)			N/A				14.32				21.95				21.57				148,170				2.64				2.10				10.75				N/A				33
	0.00				(2.20	)			N/A				12.57				20.18				(8.00	)			128,952				2.71				2.12				12.70				N/A				90
	0.00				(2.20	)			N/A				14.88				24.48				43.45				150,881				2.81				2.20				13.07				N/A				80
	(0.54	)			(2.20	)			N/A				12.52				19.05				155.94				125,370				2.90				2.32				12.27				N/A				135
$	0.00			$	(0.73	)			N/A			$	8.43			$	11.66				(1.46	%)		$	1,050,628				1.18	%*			1.00	%*			12.37	%*		$	114,950				20	%
	(0.11	)			(1.46	)			N/A				8.23				12.56				15.51				1,021,120				1.14				1.03				10.14				112,424				159
	(0.04	)			(1.46	)			N/A				8.65				12.35				8.53				1,063,863				1.06				1.05				10.00				116,082				70
	(0.07	)			(1.46	)			N/A				7.87				12.84				3.28				960,496				1.16				1.07				11.76				107,233				24
	0.00				(1.46	)			N/A				9.42				14.01				28.94				1,138,186				1.11				1.04				12.74				122,446				89
	(0.07	)			(1.46	)			N/A				8.73				12.24				156.33				1,046,236				1.25				1.15				16.69				114,573				138
$	0.00			$	(0.06	)			N/A			$	33.59			$	31.56				7.81	%		$	1,526,983				3.11	%*			2.14	%*			10.12	%*			N/A				3	%
	0.00				(3.52	)			N/A				32.11				30.32				9.62				1,458,961				3.15				2.17				11.90				N/A				18
	0.00				(2.45	)		$	(0.03	)			30.69				31.10				35.21				1,393,099				2.91	*			2.04	*			12.04	*			N/A				16

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		17

---

Table of Contents

Statements of Assets and Liabilities

 

 

(Amounts in thousands, except per share amounts)		PIMCO Global StocksPLUS®  & Income Fund				PIMCO High Income Fund
Assets:
Investments, at value
Investments in securities*		$	250,993			$	1,688,898
Financial Derivative Instruments
Exchange-traded or centrally cleared			859				6,878
Over the counter			1,144				9,470
Cash			1,201				1
Deposits with counterparty			549				32,325
Foreign currency, at value			18				279
Receivable for investments sold			19,715				227,162
Interest and dividends receivable			1,875				18,056
Other assets			31				88
			276,385				1,983,157
Liabilities:
Borrowings & Other Financing Transactions
Payable for reverse repurchase agreements		$	90,708			$	596,305
Financial Derivative Instruments
Exchange-traded or centrally cleared			769				4,245
Over the counter			3,259				1,712
Payable for investments purchased			32,254				11,539
Payable for investments purchased on a delayed-delivery basis			450				0
Deposits from counterparty			130				10,641
Dividends payable to common and preferred shareholders			1,917				15,187
Accrued management fees			181				703
Other liabilities			56				197
			129,724				640,529
Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 11,680 shares issued and outstanding for High Income Fund)			0				292,000
Net Assets Applicable to Common Shareholders		$	146,661			$	1,050,628

 

18		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited)

September 30, 2014

 

(Amounts in thousands, except per share amounts)		PIMCO Global StocksPLUS®  & Income Fund				PIMCO High Income Fund
Composition of Net Assets Applicable to Common Shareholders:
Common Shares:
Par value ($0.00001 per share)		$	0	†		$	1
Paid in capital in excess of par			230,951				1,664,498
(Overdistributed) net investment income			(9,264	)			(57,588	)
Accumulated net realized (loss)			(99,071	)			(694,595	)
Net unrealized appreciation			24,045				138,312
		$	146,661			$	1,050,628
Common Shares Issued and Outstanding			10,458				124,575
Net Asset Value Per Common Share		$	14.02			$	8.43
Cost of Investments in Securities		$	225,960			$	1,607,539
Cost of Foreign Currency Held		$	18			$	302
Cost or Premiums of Financial Derivative Instruments, net		$	(3,239	)		$	(1,188	)
* Includes repurchase agreements of:		$	7,900			$	8,872

 

†	Amount is less than $500.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		19

---

Table of Contents

Consolidated Statement of Assets and Liabilities

 

(Amounts in thousands, except per share amounts)		PIMCO Dynamic Income Fund
Assets:
Investments, at value
Investments in securities*		$	2,723,784
Financial Derivative Instruments
Exchange-traded or centrally cleared			1,174
Over the counter			25,020
Deposits with counterparty			556
Foreign currency, at value			607
Receivable for investments sold			38,123
Interest and dividends receivable			17,889
Other assets			47
			2,807,200
Liabilities:
Borrowings & Other Financing Transactions
Payable for reverse repurchase agreements		$	1,226,382
Financial Derivative Instruments
Exchange-traded or centrally cleared			174
Over the counter			21,338
Payable for investments purchased			54
Payable for investments purchased on a delayed-delivery basis			4,854
Deposits from counterparty			15,811
Distributions payable to common shareholders			8,685
Overdraft due to custodian			626
Accrued management fees			2,166
Other liabilities			127
			1,280,217
Net Assets Applicable to Common Shareholders		$	1,526,983

 

20		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited)

September 30, 2014

 

(Amounts in thousands, except per share amounts)		PIMCO Dynamic Income Fund
Composition of Net Assets Applicable to Common Shareholders:
Common Shares:
Par value ($0.00001 per share)		$	0	†
Paid in capital in excess of par			1,086,359
Undistributed net investment income			32,955
Accumulated net realized (loss)			(4,427	)
Net unrealized appreciation			412,096
		$	1,526,983
Common Shares Issued and Outstanding			45,469
Net Asset Value Per Common Share		$	33.59
Cost of Investments in Securities		$	2,365,025
Cost of Foreign Currency Held		$	624
Cost or Premiums of Financial Derivative Instruments, net		$	(26,523	)
* Includes repurchase agreements of:		$	24,400

 

†	Amount is less than $500.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		21

---

Table of Contents

Statements of Operations

 

 

Six Months Ended September 30, 2014 (Unaudited)
(Amounts in thousands)		PIMCO Global StocksPLUS®  & Income Fund				PIMCO High Income Fund
Investment Income:
Interest		$	8,061			$	70,939
Dividends			65				770
Total Income			8,126				71,709
Expenses:
Management fees			1,216				4,781
Auction agent fees and commissions			0				168
Interest expense			323				974
Trustee fees and related expenses			4				38
Auction rate preferred shares related expenses			0				3
Operating expenses pre-transition (a)
Custodian and accounting agent			36				143
Audit and tax services			45				48
Shareholder communications			12				60
New York Stock Exchange listing			11				53
Transfer agent			11				11
Legal			1				11
Insurance			4				14
Other expenses			1				0
Total Expenses			1,664				6,304
Net Investment Income			6,462				65,405
Net Realized Gain (Loss):
Investments in securities			3,901				29,885
Exchange-traded or centrally cleared financial derivative instruments			(7,217	)			(58,978	)
Over the counter financial derivative instruments			206				22,524
Foreign currency			(33	)			(168	)
Net Realized (Loss)			(3,143	)			(6,737	)
Net Change in Unrealized Appreciation (Depreciation):
Investments in securities			(3,982	)			1,589
Exchange-traded or centrally cleared financial derivative instruments			5,457				49,851
Over the counter financial derivative instruments			(954	)			3,571
Foreign currency assets and liabilities			67				647
Net Change in Unrealized Appreciation			588				55,658
Net Gain (Loss)			(2,555	)			48,921
Net Increase in Net Assets Resulting from Investment Operations			3,907				114,326
Dividends on Preferred Shares from Net Investment Income			0				(162	)
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations		$	3,907			$	114,164

 

(a)	These expenses were incurred by the Fund prior to the close of business on September 5, 2014. Subsequent to the close of business on September 5, 2014, any such operating expenses are borne by PIMCO.

 

22		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Consolidated Statement of Operations

 

 

Six Months Ended September 30, 2014 (Unaudited)
(Amounts in thousands)		PIMCO Dynamic Income Fund
Investment Income:
Interest		$	99,449
Dividends			663
Total Income			100,112
Expenses:
Management fees			15,729
Interest expense			7,375
Trustee fees and related expenses			40
Operating expenses pre-transition (a)
Custodian and accounting agent			226
Audit and tax services			45
Shareholder communications			32
New York Stock Exchange listing			19
Transfer agent			11
Legal			46
Insurance			15
Other expenses			3
Total Expenses			23,541
Net Investment Income			76,571
Net Realized Gain (Loss):
Investments in securities			7,199
Exchange-traded or centrally cleared financial derivative instruments			(1,022	)
Over the counter financial derivative instruments			5,576
Foreign currency			(235	)
Net Realized Gain			11,518
Net Change in Unrealized Appreciation (Depreciation):
Investments in securities			13,309
Exchange-traded or centrally cleared financial derivative instruments			(10,164	)
Over the counter financial derivative instruments			19,808
Foreign currency assets and liabilities			8,045
Net Change in Unrealized Appreciation			30,998
Net Gain			42,516
Net Increase in Net Assets from Investment Operations			119,087
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations		$	119,087

 

(a)	These expenses were incurred by the Fund prior to the close of business on September 5, 2014. Subsequent to the close of business on September 5, 2014, any such operating expenses are borne by PIMCO.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		23

---

Table of Contents

Statements of Changes in Net Assets

 

 

		PIMCO Global StocksPLUS® & Income Fund
(Amounts in thousands)		Six Months Ended September 30, 2014 (Unaudited)				Year Ended March 31, 2014
Increase (Decrease) in Net Assets from:
Operations:
Net investment income		$	6,462			$	14,425
Net realized gain (loss)			(3,143	)			25,860
Net change in unrealized appreciation (depreciation)			588				(13,870	)
Net increase (decrease) resulting from investment operations			3,907				26,415
Dividends on Preferred Shares from Net Investment Income			0				0
Net increase in net assets applicable to common shareholders resulting from operations			3,907				26,415
Distributions to Common Shareholders:
Net investment income			(11,489	)			(22,853	)
Tax Basis Return of Capital			0				0
Total Distributions to Common Shareholders			(11,489	)			(22,853	)
Common Share Transactions**:
Issued as reinvestment of distributions			850				1,661
Total Increase (Decrease) in Net Assets			(6,732	)			5,223
Net Assets Applicable to Common Shareholders:
Beginning of year or period			153,393				148,170
End of year or period*		$	146,661			$	153,393
* Including (overdistributed) net investment income of:		$	(9,264	)		$	(4,237	)
** Common Share Transactions:
Share issued as reinvestment of distributions			36				78

 

24		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

 

PIMCO High Income Fund
Six Months Ended September 30, 2014 (Unaudited)				Year Ended March 31, 2014
$	65,405			$	103,264
	(6,737	)			104,341
	55,658				(81,613	)
	114,326				125,992
	(162	)			(286	)
	114,164				125,706
	(90,940	)			(167,013	)
	0				(13,720	)
	(90,940	)			(180,733	)
	6,284				12,285
	29,508				(42,742	)
	1,021,120				1,063,862
$	1,050,628			$	1,021,120
$	(57,588	)		$	(31,891	)
	509				1,076

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		25

---

Table of Contents

Consolidated Statements of Changes in Net Assets

 

 

		PIMCO Dynamic Income Fund
(Amounts in thousands)		Six Months Ended September 30, 2014 (Unaudited)				Year Ended March 31, 2014
Increase in Net Assets from:
Operations:
Net investment income		$	76,571			$	167,667
Net realized gain (loss)			11,518				(42,257	)
Net change in unrealized appreciation			30,998				98,805
Net increase resulting from investment operations			119,087				224,215
Net increase in net assets applicable to common shareholders resulting from operations			119,087				224,215
Distributions to Common Shareholders:
From net investment income			(52,094	)			(149,127	)
From net realized capital gains			0				(10,615	)
Total Distributions to Common Shareholders			(52,094	)			(159,742	)
Common Share Transactions**:
Issued as reinvestment of distributions			1,029				1,389
Total Increase in Net Assets			68,022				65,862
Net Assets Applicable to Common Shareholders:
Beginning of year or period			1,458,961				1,393,099
End of year or period*		$	1,526,983			$	1,458,961
* Including undistributed net investment income of:		$	32,955			$	8,478
** Common Share Transactions:
Share issued as reinvestment of distributions			31				45

 

26		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Statements of Cash Flows

 

 

Six Months Ended September 30, 2014   (Amounts in thousands)		PIMCO Global StocksPLUS® & Income Fund				PIMCO High Income Fund
Cash flows provided by (used for) operating activities:
Net increase in net assets resulting from operations		$	3,907			$	114,326
Adjustments to reconcile net increase in net assets from operations to net cash provided by (used for) operating activities:
Purchases of long-term securities			(174,708	)			(755,165	)
Proceeds from sales of long-term securities			184,281				728,168
Purchases of short-term portfolio investments, net			(28,712	)			(3,060	)
(Increase) decrease in deposits with counterparty			16,021				(23,316	)
(Increase) decrease in receivable for investments sold			6,007				(44,557	)
Decrease in interest and dividends receivable			4				5,426
(Increase) in exchange-traded or centrally cleared derivatives			(1,703	)			(11,608	)
(Increase) decrease in over the counter derivatives			(38	)			18,395
(Increase) decrease in other assets			(9	)			29
Increase (decrease) in payable for investments purchased			6,008				(77,139	)
(Decrease) in deposits from counterparty			(11,010	)			(1,100	)
(Decrease) in accrued management fees			(15	)			(75	)
Payments on currency transactions			(30	)			(299	)
(Decrease) in other liabilities			(11	)			(30	)
Net Realized (Gain) Loss
Investments in securities			(3,901	)			(29,885	)
Exchange-traded or centrally cleared financial derivative instruments			7,217				58,978
Over the counter financial derivative instruments			(206	)			(22,524	)
Foreign currency			33				168
Net Change in Unrealized (Appreciation) Depreciation
Investments in securities			3,982				(1,589	)
Exchange-traded or centrally cleared financial derivative instruments			(5,457	)			(49,851	)
Over the counter financial derivative instruments			954				(3,571	)
Foreign currency assets and liabilities			(67	)			(647	)
Net amortization (accretion) on investments			389				25,324
Net cash provided by (used for) operating activities			2,936				(73,602	)
Cash flows received from (used for) financing activities:
(Decrease) in overdraft due to custodian			(2	)			(785	)
Cash dividend paid*			(10,633	)			(84,755	)
Proceeds from reverse repurchase agreements			276,996				2,542,523
Payments on reverse repurchase agreements			(269,817	)			(2,384,051	)
Proceeds from deposits from counterparty			0				6,698
Payments on deposits from counterparty			0				(6,162	)
Net cash received from (used for) financing activities			(3,456	)			73,468
Net (Decrease) in Cash and Foreign Currency			(520	)			(134	)
Cash and Foreign Currency:
Beginning of year			1,739				414
End of period		$	1,219			$	280
* Reinvestment of distributions		$	850			$	6,284
Supplemental disclosure of cash flow information:
Interest expense paid during the period		$	296			$	954

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		27

---

Table of Contents

Consolidated Statement of Cash Flows

 

 

Six Months Ended September 30, 2014   (Amounts in thousands)		PIMCO Dynamic Income Fund
Cash flows provided by operating activities:
Net increase in net assets resulting from operations		$	119,087
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
Purchases of long-term securities			(257,541	)
Proceeds from sales of long-term securities			281,286
Purchases of short-term portfolio investments, net			(43,699	)
Decrease in deposits with counterparty			7,332
Decrease in receivable for investments sold			63,720
Decrease in interest and dividends receivable			1,238
(Increase) in exchange-traded or centrally cleared derivatives			(11,658	)
(Increase) in over the counter derivatives			(7,391	)
(Increase) in other assets			(2	)
Increase in payable for investments purchased			2,338
Increase in deposits from counterparty			10,841
(Decrease) in accrued management fees			(482	)
Payments on currency transactions			(613	)
(Decrease) in other liabilities			(49	)
Net Realized (Gain) Loss
Investments in securities			(7,199	)
Exchange-traded or centrally cleared financial derivative instruments			1,022
Over the counter financial derivative instruments			(5,576	)
Foreign currency			235
Net Change in Unrealized (Appreciation) Depreciation
Investments in securities			(13,309	)
Exchange-traded or centrally cleared financial derivative instruments			10,164
Over the counter financial derivative instruments			(19,808	)
Foreign currency assets and liabilities			(8,045	)
Net amortization (accretion) on investments			(6,480	)
Net cash provided by operating activities			115,411
Cash flows (used for) financing activities:
Increase in overdraft due to custodian			626
Cash dividend paid*			(51,059	)
Proceeds from reverse repurchase agreements			2,908,343
Payments on reverse repurchase agreements			(2,979,737	)
Proceeds from deposits from counterparty			7,646
Payments on deposits from counterparty			(4,266	)
Net cash (used for) financing activities			(118,447	)
Net (Decrease) in Cash and Foreign Currency			(3,036	)
Cash and Foreign Currency:
Beginning of year			3,643
End of period		$	607
* Reinvestment of distributions		$	1,029
Supplemental disclosure of cash flow information:
Interest expense paid during the period		$	7,898

 

28		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Schedule of Investments PIMCO Global StocksPLUS^® & Income Fund

 

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		29

---

Table of Contents

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

 

 

 

 

30		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		31

---

Table of Contents

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

 

 

 

 

32		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		33

---

Table of Contents

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

 

 

 

 

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

 

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

^	Security is in default.

(a)	Interest only security.

(b)	Principal only security.

(c)	When-issued security.

(d)	Payment in-kind bond security.

(e)	Coupon represents a weighted average yield to maturity.

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

 

(g)  RESTRICTED SECURITIES:

 

Issuer Description		Coupon				Maturity Date				Acquisition Date				Cost				Market Value				Market Value as Percentage of Net Assets
KGH Intermediate Holdco LLC			7.734% - 8.500%				08/07/2019 - 08/08/2019				08/07/2014			$	1,863			$	1,900				1.30%
Legg Mason Mortgage Capital Corp.			7.110%				03/10/2021				01/29/2013				2,177				2,275				1.55%
Pinnacol Assurance			8.625%				06/25/2034				06/23/2014				1,100				1,116				0.76%
														$	5,140			$	5,291				3.61%

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty		Lending Rate		Settlement Date				Maturity Date				Principal Amount				Collateralized By		Collateral Received, at Value				Repurchase Agreements, at Value				Repurchase Agreement Proceeds to be Received (1)
RDR		0.000%			09/30/2014				10/01/2014			$	7,900			U.S. Treasury Notes 1.250% due 10/31/2018		$	(8,061	)		$	7,900			$	7,900
Total Repurchase Agreements																		$	(8,061	)		$	7,900			$	7,900

 

(1)	Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty		Borrowing Rate				Borrowing Date				Maturity Date				Amount Borrowed  (2)								Payable for Reverse Repurchase Agreements
BCY			(2.000	%)			08/20/2014				08/19/2016			$					(2,616	)		$	(2,610	)
			0.300	%			09/29/2014				10/14/2014								(3,203	)			(3,203	)
			0.500	%			07/24/2014				10/22/2014								(1,434	)			(1,435	)
			0.500	%			07/25/2014				10/28/2014								(2,342	)			(2,344	)
			0.500	%			09/23/2014				10/28/2014								(571	)			(571	)
			0.650	%			07/21/2014				10/21/2014								(7,035	)			(7,044	)
			0.650	%			07/24/2014				10/22/2014								(3,011	)			(3,015	)
			0.650	%			08/08/2014				10/22/2014								(676	)			(677	)
			0.650	%			08/08/2014				11/10/2014								(2,084	)			(2,086	)
			0.650	%			09/15/2014				10/15/2014								(423	)			(423	)
			0.730	%			09/04/2014				12/04/2014								(1,118	)			(1,119	)
			0.733	%			07/24/2014				10/22/2014								(1,821	)			(1,824	)

 

34		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Counterparty		Borrowing Rate				Borrowing Date				Maturity Date				Amount Borrowed  (2)								Payable for Reverse Repurchase Agreements
			0.750	%			09/15/2014				12/15/2014				$				(3,194	)		$	(3,195	)
			0.750	%			09/18/2014				12/18/2014								(1,048	)			(1,048	)
			1.382	%			07/07/2014				10/07/2014								(4,033	)			(4,046	)
			1.383	%			07/24/2014				10/22/2014								(4,874	)			(4,887	)
			1.383	%			09/04/2014				12/04/2014								(2,261	)			(2,263	)
			1.384	%			07/29/2014				10/28/2014								(1,075	)			(1,078	)
			1.385	%			08/11/2014				11/12/2014								(2,582	)			(2,587	)
			1.430	%			09/29/2014				03/27/2015								(2,050	)			(2,050	)
BRC			0.450	%			09/18/2014				10/17/2014				EUR				(973	)			(1,229	)
CFR			0.900	%			09/29/2014				10/30/2014				GBP				(99	)			(160	)
DEU			(0.750	%)			09/29/2014				09/26/2016				$				(1,006	)			(1,006	)
			0.520	%			08/27/2014				12/01/2014								(4,835	)			(4,837	)
			0.550	%			09/08/2014				10/02/2014								(1,003	)			(1,003	)
			0.550	%			09/09/2014				12/09/2014								(1,454	)			(1,455	)
			0.590	%			07/10/2014				10/08/2014								(144	)			(144	)
			0.590	%			07/29/2014				10/29/2014								(732	)			(733	)
			0.590	%			08/05/2014				11/06/2014								(1,612	)			(1,614	)
			0.590	%			09/24/2014				10/29/2014								(191	)			(191	)
			0.650	%			09/17/2014				12/16/2014								(2,161	)			(2,162	)
			0.750	%			10/02/2014				01/02/2015								(992	)			(992	)
MSC			1.150	%			08/06/2014				11/06/2014								(4,719	)			(4,727	)
			1.300	%			09/18/2014				03/18/2015								(4,055	)			(4,057	)
			1.300	%			09/23/2014				03/20/2015								(871	)			(871	)
RDR			0.600	%			07/29/2014				10/29/2014								(2,114	)			(2,116	)
			0.420	%			09/04/2014				12/04/2014								(3,099	)			(3,100	)
			0.550	%			09/29/2014				12/04/2014								(1,692	)			(1,692	)
			0.930	%			08/22/2014				11/24/2014								(4,440	)			(4,445	)
			1.230	%			07/11/2014				10/14/2014								(1,366	)			(1,370	)
			1.330	%			07/01/2014				01/02/2015								(1,718	)			(1,724	)
			1.330	%			09/29/2014				03/30/2015								(765	)			(765	)
RYL			0.750	%			09/05/2014				10/06/2014				GBP				(1,048	)			(1,700	)
UBS			0.550	%			09/24/2014				11/24/2014				$				(1,110	)			(1,110	)
Total Reverse Repurchase Agreements																						$	(90,708	)

 

(2)	The average amount of borrowings while outstanding during the period ended September 30, 2014 was $82,887 at a weighted average interest rate of 0.734%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of September 30, 2014:

 

(i)	Securities with an aggregate market value of $105,328 and cash of $443 have been pledged as collateral under the terms of the following master agreements as of September 30, 2014.

 

Counterparty		Repurchase Agreement Proceeds to be Received				Payable for Reverse Repurchase Agreements				Payable for Sale-Buyback Transactions				Payable for Short Sales				Total Borrowings and Other Financing Transactions				Collateral Pledged				Net Exposure (3)
Global/Master Repurchase Agreement
BCY		$	0			$	(47,505	)		$	0			$	0			$	(47,505	)		$	57,310			$	9,805
BRC			0				(1,229	)			0				0				(1,229	)			1,505				276
CFR			0				(160	)			0				0				(160	)			171				11
DEU			0				(14,137	)			0				0				(14,137	)			14,808				671
MSC			0				(9,655	)			0				0				(9,655	)			11,461				1,806
RDR			7,900				(15,212	)			0				0				(7,312	)			9,259				1,947

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		35

---

Table of Contents

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

 

 

 

Counterparty		Repurchase Agreement Proceeds to be Received				Payable for Reverse Repurchase Agreements				Payable for Sale-Buyback Transactions				Payable for Short Sales				Total Borrowings and Other Financing Transactions				Collateral Pledged				Net Exposure (3)
RYL		$	0			$	(1,700	)		$	0			$	0			$	(1,700	)		$	1,842			$	142
UBS			0				(1,110	)			0				0				(1,110	)			1,355				245
Total Borrowings and Other Financing Transactions		$	7,900			$	(90,708	)		$	0			$	0

 

(3)

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

 

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

 

PURCHASED OPTIONS:

 

OPTIONS ON EXCHANGE-TRADED FUTURES CONTRACTS

 

Description		Strike Price				Expiration Date				# of Contracts				Cost				Market Value
Put - CME S&P 500 Index October Futures			1,900.000				10/17/2014				133			$	133			$	280
Total Purchased Options														$	133			$	280

 

WRITTEN OPTIONS:

 

OPTIONS ON EXCHANGE-TRADED FUTURES CONTRACTS

 

Description		Strike Price				Expiration Date				# of Contracts				Premiums (Received)				Market Value
Call - CME S&P 500 Index October Futures			2,000.000				10/17/2014				133			$	(741	)		$	(233	)
Total Written Options														$	(741	)		$	(233	)

 

FUTURES CONTRACTS:

 

Description		Type		Expiration Month				# of Contracts				Unrealized (Depreciation)				Variation Margin
																Asset				Liability
E-mini S&P 500 Index December Futures		Long			12/2014				111			$	(146	)		$	0			$	(22	)
S&P 500 Index December Futures		Long			12/2014				122				(800	)			0				(122	)
Total Futures Contracts												$	(946	)		$	0			$	(144	)

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

Pay/Receive Floating Rate		Floating Rate Index		Fixed Rate				Maturity Date				Notional Amount								Market Value				Unrealized Appreciation/ (Depreciation)				Variation Margin
																												Asset				Liability
Pay		3-Month CAD-Bank Bill			3.300%				06/19/2024				CAD				4,900			$	302			$	75			$	6			$	0
Receive		3-Month CAD-Bank Bill			3.500%				06/20/2044								2,100				(153	)			(78	)			0				(6	)
Pay		3-Month USD-LIBOR			2.750%				06/19/2023				$				345,000				8,575				5,726				0				(370	)
Pay		3-Month USD-LIBOR			3.000%				06/18/2024								12,000				496				118				0				(16	)
Receive		3-Month USD-LIBOR			3.000%				12/17/2024								382,800				(9,354	)			(7,122	)			573				0
																				$	(134	)		$	(1,281	)		$	579			$	(392	)
Total Swap Agreements																				$	(134	)		$	(1,281	)		$	579			$	(392	)

 

36		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of September 30, 2014:

 

(k)

Securities with an aggregate market value of $29,055 and cash of $106 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of September 30, 2014. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

		Financial Derivative Assets																Financial Derivative Liabilities
		Market Value		Variation Margin Asset								Total						Market Value				Variation Margin Liability								Total
		Purchased Options		Futures				Swap Agreements										Written Options				Futures				Swap Agreements
Total Exchange-Traded or Centrally Cleared		$  280		$	0			$	579			$	859					$	(233	)		$	(144	)		$	(392	)		$	(769	)

 

(l)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty		Settlement Month				Currency to be Delivered								Currency to be Received								Unrealized Appreciation/ (Depreciation)
																						Asset				Liability
BOA			10/2014				EUR				966			$					1,250			$	30			$	0
			10/2014				HKD				116								15				0				0
			10/2014			$					5,917				GBP				3,618				0				(52	)
			11/2014				GBP				3,618			$					5,915				52				0
			11/2014				SGD				38								30				1				0
BPS			10/2014				BRL				382								168				12				0
			10/2014			$					156				BRL				382				0				0
BRC			10/2014				GBP				526			$					858				7				0
			11/2014				SEK				832								121				6				0
CBK			10/2014				AUD				16								15				1				0
			10/2014				CAD				51								46				1				0
			10/2014				EUR				4,335								5,715				240				0
			10/2014				HKD				349								45				0				0
			10/2014			$					177				GBP				108				0				(2	)
			10/2014								287				JPY				30,781				0				(6	)
			11/2014				CHF				123			$					136				7				0
			11/2014				GBP				98								160				1				0
			11/2014				NOK				185								30				1				0
DUB			10/2014				EUR				81								107				4				0
FBF			10/2014				GBP				28								46				1				0
GLM			10/2014				AUD				34								30				0				0
			10/2014				BRL				34								15				1				0
			10/2014				JPY				83,179								799				41				0
			10/2014			$					196				AUD				217				0				(6	)
			10/2014								14				BRL				34				0				0
			10/2014								544				EUR				420				0				(14	)
			11/2014				AUD				17			$					15				0				0
			11/2014				CHF				27								30				1				0
			11/2014				DKK				336								60				3				0
			11/2014			$					196				CHF				183				0				(4	)

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		37

---

Table of Contents

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

 

 

 

Counterparty		Settlement Month				Currency to be Delivered								Currency to be Received								Unrealized Appreciation/ (Depreciation)
																						Asset				Liability
HUS			10/2014				AUD				345			$					322			$	20			$	0
JPM			10/2014								16								15				1				0
			10/2014				GBP				28								46				1				0
			10/2014				HKD				481								62				0				0
			10/2014				JPY				4,675								45				2				0
			10/2014			$					1,261				EUR				972				0				(33	)
			10/2014								482				GBP				297				0				(1	)
			10/2014								524				JPY				57,072				0				(4	)
			11/2014				CHF				27			$					30				1				0
			11/2014				EUR				35								45				0				0
			11/2014				GBP				27								44				0				0
			11/2014				JPY				57,072								524				4				0
MSB			10/2014				BRL				379								166				11				0
			10/2014				GBP				3,442								5,708				129				0
			10/2014			$					155				BRL				379				0				0
			11/2014				SGD				19			$					15				0				0
UAG			10/2014				BRL				796								325				0				0
			10/2014			$					339				BRL				796				0				(14	)
			10/2014								5,104				EUR				3,991				0				(64	)
			11/2014				BRL				796			$					336				13				0
			11/2014				CHF				164								182				10				0
			11/2014				EUR				3,991								5,105				64				0
Total Forward Foreign Currency Contracts																						$	666			$	(200	)

 

WRITTEN OPTIONS:

 

TRANSACTIONS IN WRITTEN CALL AND PUT OPTIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2014:

 

		# of Contracts				Premiums
Balance at Beginning of Period			149			$	(875	)
Sales			858				(4,823	)
Closing Buys			(732	)			4,237
Expirations			(142	)			720
Exercised			0				0
Balance at End of Period			133			$	(741	)

 

SWAP AGREEMENTS:

 

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

 

Counterparty		Reference Obligation		Fixed Deal (Pay) Rate				Maturity Date				Notional Amount  (3)				Premiums Paid/(Received)				Unrealized Appreciation				Swap Agreements, at Value (4)
																								Asset				Liability
GST		Commercial Industrial Finance Corp. Ltd. 3-Month USD-LIBOR plus 4.000% due 10/20/2020			(4.500%	)			10/20/2020			$	478			$	0			$	5			$	5			$	0
		Telos CLO Ltd. 3-Month USD-LIBOR plus 4.250% due 10/11/2021			(5.000%	)			10/11/2021				1,500				0				31				31				0
																$	0			$	36			$	36			$	0

 

38		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

CREDIT DEFAULT SWAPS ON ASSET-BACKED SECURITIES - SELL PROTECTION ⁽²⁾

 

Counterparty		Reference Obligation		Fixed Deal Receive Rate				Maturity Date				Notional Amount  (3)				Premiums Paid/(Received)				Unrealized Appreciation/ (Depreciation)				Swap Agreements, at Value (4)
																								Asset				Liability
BOA		Long Beach Mortgage Loan Trust 1-Month USD-LIBOR plus 5.250% due 07/25/2033			6.250%				07/25/2033			$	451			$	0			$	(198	)		$	0			$	(198	)
MYC		Morgan Stanley Dean Witter Capital 1-Month USD-LIBOR plus 3.225% due 08/25/2032			3.225%				08/25/2032				156				(3	)			4				1				0
																$	(3	)		$	(194	)		$	1			$	(198	)

 

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

 

Counterparty		Index/Tranches		Fixed Deal Receive Rate				Maturity Date				Notional Amount  (3)				Premiums (Received)				Unrealized Appreciation				Swap Agreements, at Value (4)
																								Asset				Liability
RYL		ABX.HE.AA.6-1 Index			0.320%				07/25/2045			$	2,975			$	(1,751	)		$	1,095			$	0			$	(656	)
		ABX.HE.PENAAA.7-1 Index			0.090%				08/25/2037				2,459				(1,217	)			652				0				(565	)
																$	(2,968	)		$	1,747			$	0			$	(1,221	)

 

(1)

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

(2)

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

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

(4)

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

 

INTEREST RATE SWAPS

 

Counterparty

Pay/ Receive Floating Rate

Floating Rate Index

Fixed Rate

Maturity Date

Notional Amount

Premiums Paid

Unrealized (Depreciation)

Swap Agreements, at Value

Asset

Liability

BPS

Pay

1-Year BRL-CDI

12.055%

01/04/2021

BRL  3,600

$

10

$

(6

)

$

4

$

0

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		39

---

Table of Contents

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

 

 

 

 

TOTAL RETURN SWAPS ON CONVERTIBLE SECURITIES

 

Counterparty		Pay/ Receive (5)		Underlying Reference		# of Shares				Financing Rate		Maturity Date				Notional Amount				Premiums Paid/ (Received)				Unrealized Appreciation/ (Depreciation)				Swap Agreements, at Value
																												Asset				Liability
DUB		Receive		OGX Petroleo e Gas Participaceos S.A.			1,227			Not Applicable, Fully Funded			02/11/2015			$	181			$	181			$	107			$	288			$	0
		Receive		OGX Petroleo e Gas Participaceos S.A.			841			Not Applicable, Fully Funded			04/11/2015				149				149				0				149				0
																				$	330			$	107			$	437			$	0

 

TOTAL RETURN SWAPS ON INDICES

 

Counterparty		Pay/ Receive (5)		Underlying Reference		# of Units				Financing Rate		Maturity Date				Notional Amount				Premiums Paid/ (Received)				Unrealized Appreciation/ (Depreciation)				Swap Agreements, at Value
																												Asset				Liability
FBF		Receive		NDDUEAFE Index			15,000			1-Month USD-LIBOR plus a specified spread			04/28/2015			$	77,368							$	(1,640	)		$	0			$	(1,640	)
Total Swap Agreements																				$	(2,631	)		$	50			$	478			$	(3,059	)

 

(5)

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

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of September 30, 2014:

 

(m)	Securities with an aggregate market value of $3,287 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of September 30, 2014.

 

		Financial Derivative Assets																		Financial Derivative Liabilities
Counterparty		Forward Foreign Currency Contracts				Purchased Options				Swap Agreements				Total Over the Counter						Forward Foreign Currency Contracts				Written Options				Swap Agreements				Total Over the Counter				Net Market Value of OTC Derivatives				Collateral (Received)/ Pledged				Net Exposure  (6)
BOA		$	83			$	0			$	0			$	83					$	(52	)		$	0			$	(198	)		$	(250	)		$	(167	)		$	374			$	207
BPS			12				0				4				16						0				0				0				0				16				0				16
BRC			13				0				0				13						0				0				0				0				13				0				13
CBK			251				0				0				251						(8	)			0				0				(8	)			243				0				243
DUB			4				0				437				441						0				0				0				0				441				0				441
FBF			1				0				0				1						0				0				(1,640	)			(1,640	)			(1,639	)			1,554				(85	)
GLM			46				0				0				46						(24	)			0				0				(24	)			22				0				22
GST			0				0				36				36						0				0				0				0				36				(130	)			(94	)
HUS			20				0				0				20						0				0				0				0				20				0				20
JPM			9				0				0				9						(38	)			0				0				(38	)			(29	)			0				(29	)
MSB			140				0				0				140						0				0				0				0				140				0				140
MYC			0				0				1				1						0				0				0				0				1				(25	)			(24	)
RYL			0				0				0				0						0				0				(1,221	)			(1,221	)			(1,221	)			1,359				138
UAG			87				0				0				87						(78	)			0				0				(78	)			9				0				9
Total Over the Counter		$	666			$	0			$	478			$	1,144					$	(200	)		$	0			$	(3,059	)		$	(3,259	)

 

(6)

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

 

40		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared
Purchased Options		$	0			$	0			$	280			$	0			$	0			$	280
Swap Agreements			0				0				0				0				579				579
		$	0			$	0			$	280			$	0			$	579			$	859
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	666			$	0			$	666
Swap Agreements			0				37				437				0				4				478
		$	0			$	37			$	437			$	666			$	4			$	1,144
		$	0			$	37			$	717			$	666			$	583			$	2,003
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared
Written Options		$	0			$	0			$	233			$	0			$	0			$	233
Futures			0				0				144				0				0				144
Swap Agreements			0				0				0				0				392				392
		$	0			$	0			$	377			$	0			$	392			$	769
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	200			$	0			$	200
Swap Agreements			0				1,419				1,640				0				0				3,059
		$	0			$	1,419			$	1,640			$	200			$	0			$	3,259
		$	0			$	1,419			$	2,017			$	200			$	392			$	4,028

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		41

---

Table of Contents

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

 

 

 

 

The Effect of Financial Derivative Instruments on the Statements of Operations for the Period Ended September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Net Realized Gain (Loss) on Financial Derivative Instruments
Exchange-traded or centrally cleared
Purchased Options		$	0			$	0			$	(1,311	)		$	0			$	0			$	(1,311	)
Written Options			0				0				(1,606	)			0				0				(1,606	)
Futures			0				0				6,027				0				0				6,027
Swap Agreements			0				0				0				0				(10,327	)			(10,327	)
		$	0			$	0			$	3,110			$	0			$	(10,327	)		$	(7,217	)
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	214			$	0			$	214
Swap Agreements			0				(8	)			0				0				0				(8	)
		$	0			$	(8	)		$	0			$	214			$	0			$	206
		$	0			$	(8	)		$	3,110			$	214			$	(10,327	)		$	(7,011	)
Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments
Exchange-traded or centrally cleared
Purchased Options		$	0			$	0			$	312			$	0			$	0			$	312
Written Options			0				0				319				0				0				319
Futures			0				0				(1,501	)			0				0				(1,501	)
Swap Agreements			0				0				0				0				6,327				6,327
		$	0			$	0			$	(870	)		$	0			$	6,327			$	5,457
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	516			$	0			$	516
Swap Agreements			0				73				(1,533	)			0				(10	)			(1,470	)
		$	0			$	73			$	(1,533	)		$	516			$	(10	)		$	(954	)
		$	0			$	73			$	(2,403	)		$	516			$	6,317			$	4,503

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of September 30, 2014 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory		Level 1				Level 2				Level 3				Fair Value at 09/30/2014
Investments in Securities, at Value
Bank Loan Obligations		$	0			$	4,904			$	757			$	5,661
Corporate Bonds & Notes
Banking & Finance			0				34,715				2,800				37,515
Industrials			0				20,002				3,324				23,326
Utilities			0				3,609				0				3,609
Municipal Bonds & Notes
West Virginia			0				1,489				0				1,489
U.S. Government Agencies			0				24,408				0				24,408
U.S. Treasury Obligations			0				1,000				0				1,000
Mortgage-Backed Securities			0				92,590				3,468				96,058
Asset-Backed Securities			0				14,741				0				14,741
Sovereign Issues			0				302				0				302

 

42		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Category and Subcategory		Level 1				Level 2				Level 3				Fair Value at 09/30/2014
Preferred Securities
Banking & Finance		$	0			$	427			$	0			$	427
Utilities			554				1,207				0				1,761
Short-Term Instruments
Repurchase Agreements			0				7,900				0				7,900
Short-Term Notes			0				100				0				100
U.S. Treasury Bills			0				32,696				0				32,696
Total Investments		$	554			$	240,090			$	10,349			$	250,993
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared			280				579				0				859
Over the counter			0				707				437				1,144
		$	280			$	1,286			$	437			$	2,003
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared			(377	)			(392	)			0				(769	)
Over the counter			0				(3,259	)			0				(3,259	)
		$	(377	)		$	(3,651	)		$	0			$	(4,028	)
Totals		$	457			$	237,725			$	10,786			$	248,968

 

There were no significant transfers between Level 1 and 2 during the period ended September 30, 2014.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended September 30, 2014:

 

Category and Subcategory		Beginning Balance at 03/31/2014				Net Purchases  (1)				Net Sales  (1)				Accrued Discounts/ (Premiums)				Realized Gain/ (Loss)				Net Change in Unrealized Appreciation/ (Depreciation)  (2)				Transfers into Level 3				Transfers out of Level 3				Ending Balance at 09/30/2014				Net Change in Unrealized Appreciation/ (Depreciation) on Investments Held at 09/30/2014 (2)
Investments in Securities, at Value
Bank Loan Obligations		$	862			$	107			$	(200	)		$	12			$	0			$	(24	)		$	0			$	0			$	757			$	(24	)
Corporate Bonds & Notes
Banking & Finance			2,983				3,944				0				1				0				51				0				(4,179	)			2,800				54
Industrials			2,697				1,100				(159	)			0				0				(173	)			0				(141	)			3,324				(34	)
Mortgage-Backed Securities			3,616				16				(554	)			4				0				9				377				0				3,468				(12	)
Asset-Backed Securities			4,306				0				(347	)			71				268				595				0				(4,893	)			0				0
		$	14,464			$	5,167			$	(1,260	)		$	88			$	268			$	458			$	377			$	(9,213	)		$	10,349			$	(16	)
Financial Derivative Instruments - Assets
Over the counter			0				0				0				0				0				437				0				0				437				437
Totals		$	14,464			$	5,167			$	(1,260	)		$	88			$	268			$	895			$	377			$	(9,213	)		$	10,786			$	421

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		43

---

Table of Contents

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

 

(Unaudited) September 30, 2014

 

 

 

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

 

Category and Subcategory

Ending Balance at 09/30/2014

Valuation Technique

Unobservable Inputs

Input Value(s) (% Unless Noted Otherwise)

Investments in Securities, at Value

Bank Loan Obligations

$

757

Third Party Vendor

Broker Quote

83.00-108.50

Corporate Bonds & Notes

Banking & Finance

475

Benchmark Pricing

Base Price

100.00

1,425

Discounted Cash Flows

Credit Rating

B-BBB

OAS Spread

600-950bps

Yield

8.75-9.75

900

Market Comparable Companies

Credit Rating

B-BB

Net Debt to Equity Ratio

8-10x

Yield

8.00-10.00

Industrials

1,116

Benchmark Pricing

Base Price

102.67

2,208

Third Party Vendor

Broker Quote

108.00-110.75

Mortgage-Backed Securities

575

Benchmark Pricing

Base Price

106.51

2,275

Indicative Market Quotation

Broker Quote

100.75

618

Third Party Vendor

Broker Quote

77.00-99.47

Financial Derivative Instruments - Assets

Over the counter

437

Indicative Market Quotation

Broker Quote

99.77-159.06

Total

$

10,786

 

(1)	Net Purchases and Sales for Financial Derivative Instruments may include payments made or received upon entering into swap agreements to compensate for differences between the stated terms of the swap agreement and prevailing market conditions.

(2)	Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at September 30, 2014 may be due to an investment no longer held or categorized as level 3 at period end.

 

44		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Schedule of Investments PIMCO High Income Fund

 

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		45

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

 

 

46		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		47

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

 

 

48		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

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

 

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

^	Security is in default.

(a)	Interest only security.

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

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(c)  REPURCHASE AGREEMENTS:

 

Counterparty		Lending Rate		Settlement Date				Maturity Date				Principal Amount				Collateralized By		Collateral Received, at Value				Repurchase Agreements, at Value				Repurchase Agreement Proceeds to be Received (1)
BOS		0.000%			09/30/2014				10/01/2014			$	6,400			U.S. Treasury Notes 2.125% due 09/30/2021		$	(6,522	)		$	6,400			$	6,400
SSB		0.000%			09/30/2014				10/01/2014				2,472			U.S. Treasury Notes 1.500% due 02/28/2019			(2,525	)			2,472				2,472
Total Repurchase Agreements																		$	(9,047	)		$	8,872			$	8,872

 

(1)	Includes accrued interest.

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		49

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty		Borrowing Rate				Borrowing Date				Maturity Date				Amount Borrowed  (2)								Payable for Reverse Repurchase Agreements
BCY			0.400	%			08/25/2014				10/03/2014				$				(2,724	)		$	(2,725	)
BRC			1.000	%			08/14/2014				10/14/2014				GBP				(14,707	)			(23,874	)
CFR			0.690	%			09/29/2014				10/30/2014				EUR				(1,675	)			(2,115	)
DEU			0.550	%			08/26/2014				10/03/2014				$				(33,862	)			(33,881	)
MSC			0.450	%			08/28/2014				10/02/2014								(5,724	)			(5,726	)
			0.480	%			08/28/2014				10/02/2014								(7,904	)			(7,908	)
			0.480	%			09/02/2014				10/02/2014								(19,648	)			(19,656	)
			0.480	%			09/25/2014				10/23/2014								(10,838	)			(10,839	)
			0.500	%			09/19/2014				10/20/2014								(11,366	)			(11,368	)
			0.550	%			10/02/2014				01/05/2015								(33,850	)			(33,850	)
RDR			0.050	%			10/03/2014				11/03/2014								(10,314	)			(10,314	)
			0.500	%			08/29/2014				10/02/2014								(10,997	)			(11,002	)
			0.500	%			08/29/2014				10/03/2014								(128,556	)			(128,557	)
			0.500	%			09/02/2014				10/03/2014								(15,676	)			(15,682	)
			0.500	%			09/19/2014				10/20/2014								(40,444	)			(40,451	)
			0.500	%			10/02/2014				11/03/2014								(11,060	)			(11,060	)
			0.500	%			10/03/2014				11/03/2014								(132,376	)			(132,376	)
UBS			0.380	%			09/16/2014				10/17/2014								(20,330	)			(20,333	)
			0.450	%			08/25/2014				10/06/2014								(26,601	)			(26,613	)
			0.450	%			09/24/2014				10/23/2014								(9,592	)			(9,593	)
			0.500	%			08/29/2014				10/02/2014								(10,640	)			(10,645	)
			0.500	%			10/01/2014				01/05/2015								(17,121	)			(17,121	)
			0.500	%			10/02/2014				11/06/2014								(10,616	)			(10,616	)
Total Reverse Repurchase Agreements																						$	(596,305	)

 

(2)	The average amount of borrowings while outstanding during the period ended September 30, 2014 was $403,982 at a weighted average interest rate of 0.490%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of September 30, 2014:

 

(d)	Securities with an aggregate market value of $676,876 and cash of $924 have been pledged as collateral under the terms of the following master agreements as of September 30, 2014.

 

Counterparty		Repurchase Agreement Proceeds to be Received				Payable for Reverse Repurchase Agreements				Payable  for Sale-Buyback Transactions				Payable for Short Sales				Total Borrowings and Other Financing Transactions				Collateral (Received)/ Pledged				Net Exposure  (3)
Global/Master Repurchase Agreement
BCY		$	0			$	(2,725	)		$	0			$	0			$	(2,725	)		$	2,838			$	113
BOS			6,400				0				0				0				6,400				(6,522	)			(122	)
BRC			0				(23,874	)			0				0				(23,874	)			28,062				4,188
CFR			0				(2,115	)			0				0				(2,115	)			2,565				450
DEU			0				(33,881	)			0				0				(33,881	)			36,535				2,654
MSC			0				(89,347	)			0				0				(89,347	)			95,895				6,548
RDR			0				(349,442	)			0				0				(349,442	)			411,342				61,900
SSB			2,472				0				0				0				2,472				(2,525	)			(53	)
UBS			0				(94,921	)			0				0				(94,921	)			99,688				4,767

 

50		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

Counterparty		Repurchase Agreement Proceeds to be Received				Payable for Reverse Repurchase Agreements				Payable  for Sale-Buyback Transactions				Payable for Short Sales				Total Borrowings and Other Financing Transactions				Collateral (Received)/ Pledged				Net Exposure  (3)
Master Securities Forward Transaction Agreement
BCY		$	0			$	0			$	0			$	0			$	0			$	(340	)		$	(340	)
Total Borrowings and Other Financing Transactions		$	8,872			$	(596,305	)		$	0			$	0

 

(3)

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

 

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

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

Pay/Receive Floating Rate		Floating Rate Index		Fixed Rate				Maturity Date				Notional Amount				Market Value				Unrealized Appreciation/ (Depreciation)				Variation Margin
																								Asset				Liability
Receive		3-Month USD-LIBOR			2.000	%			06/18/2019			$	712,000			$	(7,958	)		$	(3,750	)		$	264			$	0
Receive		3-Month USD-LIBOR			3.750	%			09/17/2043				700,000				(53,999	)			(3,473	)			4,283				0
Pay		3-Month USD-LIBOR			3.500	%			06/19/2044				700,000				49,109				59,771				0				(4,245	)
Receive		3-Month USD-LIBOR			3.500	%			12/17/2044				380,000				(20,339	)			(5,315	)			2,331				0
																$	(33,187	)		$	47,233			$	6,878			$	(4,245	)
Total Swap Agreements																$	(33,187	)		$	47,233			$	6,878			$	(4,245	)

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of September 30, 2014:

 

Cash of $31,401 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of September 30, 2014. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

		Financial Derivative Assets																Financial Derivative Liabilities
		Market Value		Variation Margin Asset								Total						Market Value				Variation Margin Liability								Total
		Purchased Options		Futures				Swap Agreements										Written Options				Futures				Swap Agreements
Total Exchange-Traded or Centrally Cleared		$  0		$	0			$	6,878			$	6,878					$	0			$	0			$	(4,245	)		$	(4,245	)

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		51

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

 

 

(f) FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty		Settlement Month				Currency to be Delivered								Currency to be Received								Unrealized Appreciation/ (Depreciation)
																						Asset				Liability
BOA			10/2014				EUR				150			$					195			$	6			$	0
			10/2014			$					15,942				GBP				9,748				0				(139	)
			11/2014				GBP				9,748			$					15,938				139				0
			06/2015				EUR				1,300								1,768				122				0
			06/2015			$					209				EUR				160				0				(7	)
			06/2016				EUR				3,698			$					5,063				327				0
			06/2016			$					216				EUR				160				0				(11	)
BPS			12/2014								49,325				MXN				659,722				0				(460	)
			06/2015				EUR				594			$					806				54				0
BRC			10/2014								250								329				14				0
			11/2014			$					1,074				GBP				655				0				(12	)
			12/2014								5,169				MXN				68,195				0				(118	)
			06/2015				EUR				747			$					1,015				69				0
			06/2015			$					330				EUR				250				0				(14	)
			06/2016				EUR				692			$					952				65				0
CBK			10/2014								3,341								4,386				167				0
			06/2015								639								874				64				0
			06/2015			$					66				EUR				50				0				(3	)
DUB			10/2014				EUR				761			$					987				26				0
			12/2014				MXN				720,360								53,362				6				0
			06/2015			$					990				EUR				761				0				(26	)
			02/2016				EUR				6,750			$					9,083				482				0
			06/2016								386								529				34				0
FBF			04/2015								14,231								19,294				1,289				0
			06/2015								1,080								1,466				99				0
GLM			10/2014								2,159								2,778				51				0
			11/2014								1,670								2,126				16				0
			06/2015			$					1,448				EUR				1,089				0				(70	)
HUS			11/2014								2,135								1,675				0				(19	)
JPM			10/2014								584								450				0				(15	)
MSB			10/2014				GBP				9,748			$					16,167				364				0
			06/2015				EUR				904								1,239				95				0
			06/2016								971								1,335				92				0
NAB			06/2015								755								1,027				71				0
			06/2016								2,113								2,901				195				0
			07/2016								268								364				20				0
UAG			10/2014								447								588				23				0
			10/2014			$					8,516				EUR				6,658				0				(106	)
			11/2014				EUR				6,658			$					8,517				106				0
			06/2015			$					589				EUR				447				0				(23	)
Total Forward Foreign Currency Contracts																						$	3,996			$	(1,023	)

 

52		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

Counterparty		Pay/ Receive Floating Rate		Floating Rate Index				Fixed Rate				Maturity Date				Notional Amount				Premiums Paid/(Received)				Unrealized Appreciation				Swap Agreements, at Value
																												Asset				Liability
BOA		Pay			3-Month USD-LIBOR				2.200%				01/14/2020			$	537,500			$	(942	)		$	547			$	0			$	(395	)
MYC		Pay			3-Month USD-LIBOR				2.050%				11/19/2019				1,000,000				373				5,101				5,474				0
		Pay			3-Month USD-LIBOR				2.200%				01/14/2020				398,800				(619	)			325				0				(294	)
																				$	(1,188	)		$	5,973			$	5,474			$	(689	)
Total Swap Agreements																				$	(1,188	)		$	5,973			$	5,474			$	(689	)

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of September 30, 2014:

 

(g)	Securities with an aggregate market value of $500 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of September 30, 2014.

 

		Financial Derivative Assets																		Financial Derivative Liabilities
Counterparty		Forward Foreign Currency Contracts				Purchased Options				Swap Agreements				Total Over the Counter						Forward Foreign Currency Contracts				Written Options				Swap Agreements				Total Over the Counter				Net Market Value of OTC Derivatives				Collateral (Received)/ Pledged				Net Exposure  (1)
BOA		$	594			$	0			$	0			$	594					$	(157	)		$	0			$	(395	)		$	(552	)		$	42			$	0			$	42
BPS			54				0				0				54						(460	)			0				0				(460	)			(406	)			500				94
BRC			148				0				0				148						(144	)			0				0				(144	)			4				0				4
CBK			231				0				0				231						(3	)			0				0				(3	)			228				(30	)			198
DUB			548				0				0				548						(26	)			0				0				(26	)			522				(290	)			232
FBF			1,388				0				0				1,388						0				0				0				0				1,388				(1,140	)			248
GLM			67				0				0				67						(70	)			0				0				(70	)			(3	)			0				(3	)
HUS			0				0				0				0						(19	)			0				0				(19	)			(19	)			0				(19	)
JPM			0				0				0				0						(15	)			0				0				(15	)			(15	)			0				(15	)
MSB			551				0				0				551						0				0				0				0				551				(350	)			201
MYC			0				0				5,474				5,474						0				0				(294	)			(294	)			5,180				(7,765	)			(2,585	)
NAB			286				0				0				286						0				0				0				0				286				(260	)			26
UAG			129				0				0				129						(129	)			0				0				(129	)			(0	)			0				(0	)
Total Over the Counter		$	3,996			$	0			$	5,474			$	9,470					$	(1,023	)		$	0			$	(689	)		$	(1,712	)

 

(1)

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

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		53

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

 

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	6,878			$	6,878
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	3,996			$	0			$	3,996
Swap Agreements			0				0				0				0				5,474				5,474
		$	0			$	0			$	0			$	3,996			$	5,474			$	9,470
		$	0			$	0			$	0			$	3,996			$	12,352			$	16,348
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	4,245			$	4,245
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	1,023			$	0			$	1,023
Swap Agreements			0				0				0				0				689				689
		$	0			$	0			$	0			$	1,023			$	689			$	1,712
		$	0			$	0			$	0			$	1,023			$	4,934			$	5,957

 

The Effect of Financial Derivative Instruments on the Statements of Operations for the Period Ended September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Net Realized Gain (Loss) on Financial Derivative Instruments
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	(58,978	)		$	(58,978	)
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	402			$	0			$	402
Swap Agreements			0				781				0				0				21,341				22,122
		$	0			$	781			$	0			$	402			$	21,341			$	22,524
		$	0			$	781			$	0			$	402			$	(37,637	)		$	(36,454	)
Net Change in Unrealized Appreciation on Financial Derivative Instruments
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	49,851			$	49,851
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	3,243			$	0			$	3,243
Swap Agreements			0				0				0				0				328				328
		$	0			$	0			$	0			$	3,243			$	328			$	3,571
		$	0			$	0			$	0			$	3,243			$	50,179			$	53,422

 

54		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of September 30, 2014 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory		Level 1				Level 2				Level 3				Fair Value at 09/30/2014
Investments in Securities, at Value
Corporate Bonds & Notes
Banking & Finance		$	0			$	213,462			$	32,471			$	245,933
Industrials			0				73,133				19,223				92,356
Utilities			0				27,304				4,355				31,659
Municipal Bonds & Notes
California			0				41,172				0				41,172
Colorado			0				1,085				0				1,085
District of Columbia			0				10,420				0				10,420
Illinois			0				50,718				0				50,718
Nebraska			0				20,995				0				20,995
Nevada			0				3,485				0				3,485
New Jersey			0				516				0				516
New York			0				3,552				0				3,552
Pennsylvania			0				38,692				0				38,692
Texas			0				8,206				0				8,206
Washington			0				9,009				0				9,009
Wisconsin			0				6,054				0				6,054
U.S. Government Agencies			0				793,303				12,421				805,724
Mortgage-Backed Securities			0				231,431				2,047				233,478
Asset-Backed Securities			0				55,079				0				55,079
Preferred Securities
Banking & Finance			0				19,293				0				19,293
Short-Term Instruments
Repurchase Agreements			0				8,872				0				8,872
Short-Term Notes			0				2,100				0				2,100
U.S. Treasury Bills			0				500				0				500
Total Investments		$	0			$	1,618,381			$	70,517			$	1,688,898
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared			0				6,878				0				6,878
Over the counter			0				9,470				0				9,470
		$	0			$	16,348			$	0			$	16,348
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared			0				(4,245	)			0				(4,245	)
Over the counter			0				(1,712	)			0				(1,712	)
		$	0			$	(5,957	)		$	0			$	(5,957	)
Totals		$	0			$	1,628,772			$	70,517			$	1,699,289

 

There were no significant transfers between Level 1 and 2 during the period ended September 30, 2014.

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		55

---

Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

(Unaudited) September 30, 2014

 

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended September 30, 2014:

 

Category and Subcategory		Beginning Balance at 03/31/2014				Net Purchases				Net Sales				Accrued Discounts/ (Premiums)				Realized Gain/ (Loss)				Net Change in Unrealized Appreciation/ (Depreciation) (1)				Transfers into Level 3				Transfers out of Level 3				Ending Balance at 09/30/2014				Net Change in Unrealized Appreciation/ (Depreciation) on Investments Held at 09/30/2014 (1)
Investments in Securities, at Value
Corporate Bonds & Notes
Banking & Finance		$	30,441			$	0			$	(98	)		$	354			$	4			$	1,770			$	0			$	0			$	32,471			$	514
Industrials			17,846				0				(100	)			6				16				1,455				0				0				19,223				0
Utilities			339				0				(87	)			(1	)			(2	)			18				4,088				0				4,355				0
U.S. Government Agencies			11,236				0				(2,339	)			0				(29	)			230				12,421				(9,098	)			12,421				0
Mortgage-Backed Securities			0				2,084				(4	)			0				0				(33	)			0				0				2,047				(33	)
Totals		$	59,862			$	2,084			$	(2,628	)		$	359			$	(11	)		$	3,440			$	16,509			$	(9,098	)		$	70,517			$	481

 

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

 

Category and Subcategory

Ending Balance at 09/30/2014

Valuation Technique

Unobservable Inputs

Input Value(s) (% Unless Noted Otherwise)

Investments in Securities, at Value

Corporate Bonds & Notes

Banking & Finance

$

32,471

Benchmark Pricing

Base Price

80.89-113.80

Industrials

19,223

Benchmark Pricing

Base Price

91.81

Utilities

4,355

Third Party Vendor

Broker Quote

106.75-107.00

U.S. Government Agencies

12,421

Third Party Vendor

Broker Quote

9.58

Mortgage-Backed Securities

2,047

Benchmark Pricing

Base Price

104.00

Total

$

70,517

 

(1)	Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at September 30, 2014 may be due to an investment no longer held or categorized as level 3 at period end.

 

56		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund

 

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		57

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

58		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		59

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

60		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		61

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

62		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*, EXCEPT NUMBER OF SHARES):

 

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

^	Security is in default.

(a)	Interest only security.

(b)	Coupon represents a weighted average yield to maturity.

(c)	Principal amount of security is adjusted for inflation.

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

 

(e)  RESTRICTED SECURITIES:

 

Issuer Description		Coupon				Maturity Date				Acquisition Date				Cost				Market Value				Market Value as Percentage of Net Assets
KGH Intermediate Holdco LLC			7.734% - 8.500%				08/07/2019 - 08/08/2019				08/07/2014			$	17,747			$	18,099				1.18%
Pinnacol Assurance			8.625%				06/25/2034				06/23/2014				10,200				10,350				0.68%
														$	27,947			$	28,449				1.86%

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(f)  REPURCHASE AGREEMENTS:

 

Counterparty		Lending Rate		Settlement Date				Maturity Date				Principal Amount				Collateralized By		Collateral Received, at Value				Repurchase Agreements, at Value				Repurchase Agreement Proceeds to be Received (1)
BOS		0.000%			09/30/2014				10/01/2014			$	7,000			U.S. Treasury Notes 2.125% due 09/30/2021		$	(7,133	)		$	7,000			$	7,000
IND		0.000%			09/30/2014				10/01/2014				17,400			U.S. Treasury Notes 2.625% due 11/15/2020			(17,755	)			17,400				17,400
Total Repurchase Agreements																		$	(24,888	)		$	24,400			$	24,400

 

(1)	Includes accrued interest.

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		63

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty		Borrowing Rate				Borrowing Date				Maturity Date				Amount Borrowed  (2)								Payable for Reverse Repurchase Agreements
BCY			0.400	%			08/05/2014				11/06/2014				$				(7,926	)		$	(7,931	)
			0.450	%			08/13/2014				11/13/2014								(2,244	)			(2,245	)
			0.550	%			08/22/2014				04/14/2016								(5,250	)			(5,253	)
			0.650	%			07/21/2014				10/21/2014								(11,065	)			(11,079	)
			0.650	%			07/23/2014				10/23/2014								(1,635	)			(1,637	)
			0.650	%			09/15/2014				10/15/2014								(5,108	)			(5,109	)
			0.650	%			09/23/2014				12/23/2014								(19,364	)			(19,367	)
			0.700	%			09/16/2014				11/17/2014								(2,910	)			(2,911	)
			0.734	%			08/14/2014				11/14/2014								(2,341	)			(2,343	)
			0.750	%			09/09/2014				12/09/2014								(8,741	)			(8,745	)
			0.750	%			09/15/2014				12/15/2014								(7,235	)			(7,237	)
			1.133	%			07/24/2014				10/22/2014								(37,451	)			(37,532	)
			1.383	%			07/24/2014				10/22/2014								(6,943	)			(6,961	)
			1.383	%			09/08/2014				12/08/2014								(5,273	)			(5,278	)
			1.423	%			04/16/2014				10/16/2014								(21,407	)			(21,549	)
			1.423	%			04/17/2014				10/17/2014								(17,332	)			(17,446	)
			1.423	%			05/06/2014				11/06/2014								(8,512	)			(8,562	)
			1.425	%			06/20/2014				12/22/2014								(17,817	)			(17,890	)
			1.425	%			07/22/2014				01/22/2015								(33,936	)			(34,031	)
			1.425	%			09/24/2014				12/22/2014								(6,228	)			(6,230	)
			1.427	%			07/23/2014				01/23/2015								(27,292	)			(27,368	)
			1.429	%			09/05/2014				03/05/2015								(5,094	)			(5,099	)
			1.429	%			09/24/2014				03/24/2015								(12,556	)			(12,560	)
			1.431	%			09/29/2014				03/30/2015								(2,685	)			(2,685	)
			1.436	%			07/30/2014				01/30/2015								(4,264	)			(4,275	)
BOS			1.300	%			09/26/2014				10/27/2014								(5,717	)			(5,718	)
			1.438	%			08/25/2014				11/25/2014								(6,039	)			(6,048	)
			1.438	%			08/26/2014				11/26/2014								(11,136	)			(11,152	)
			1.484	%			08/12/2014				11/12/2014								(15,534	)			(15,566	)
BPG			1.235	%			09/11/2014				12/11/2014								(9,453	)			(9,460	)
BRC			0.550	%			09/08/2014				10/08/2014								(7,053	)			(7,055	)
			0.650	%			09/02/2014				10/02/2014								(14,959	)			(14,967	)
			0.650	%			10/02/2014				11/04/2014								(15,201	)			(15,201	)
			0.850	%			07/16/2014				10/17/2014				EUR				(4,780	)			(6,048	)
CFR			0.900	%			09/29/2014				10/30/2014				GBP				(1,925	)			(3,121	)
DBL			1.204	%			09/22/2014				10/22/2014				$				(5,642	)			(5,644	)
			1.388	%			08/28/2014				11/28/2014								(10,355	)			(10,369	)
			1.734	%			07/28/2014				10/29/2014								(31,947	)			(32,047	)
DEU			0.590	%			09/24/2014				10/14/2014								(1,913	)			(1,913	)
			0.620	%			09/04/2014				12/04/2014								(8,880	)			(8,884	)
FOB			1.493	%			08/08/2014				10/08/2014								(16,821	)			(16,859	)
			1.494	%			08/22/2014				10/23/2014								(77,326	)			(77,454	)
			1.495	%			09/17/2014				11/17/2014								(8,886	)			(8,891	)
			1.497	%			09/04/2014				11/04/2014								(4,399	)			(4,404	)
			1.497	%			09/30/2014				10/01/2014								(1,194	)			(1,194	)
			1.499	%			10/01/2014				12/01/2014								(1,174	)			(1,174	)
JPS			1.484	%			09/18/2014				12/18/2014								(7,428	)			(7,432	)
MSC			1.100	%			07/15/2014				10/15/2014								(11,695	)			(11,723	)
			1.150	%			07/15/2014				10/15/2014								(7,041	)			(7,059	)
RBC			0.600	%			08/12/2014				11/12/2014								(1,582	)			(1,583	)
			0.700	%			09/16/2014				03/16/2015								(14,095	)			(14,099	)
			0.700	%			09/18/2014				03/18/2015								(21,834	)			(21,840	)
			0.700	%			09/22/2014				03/23/2015								(11,546	)			(11,548	)
			1.330	%			09/23/2014				03/24/2015								(11,208	)			(11,211	)
			1.433	%			05/14/2014				05/14/2015								(64,296	)			(64,652	)
RDR			(2.000	%)			05/12/2014				05/12/2016								(1,273	)			(1,263	)

 

64		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Counterparty		Borrowing Rate				Borrowing Date				Maturity Date				Amount Borrowed  (2)								Payable for Reverse Repurchase Agreements
			(2.000	%)			05/23/2014				05/21/2016				$				(952	)		$	(945	)
			0.500	%			07/28/2014				10/28/2014								(11,627	)			(11,638	)
			0.550	%			06/16/2014				12/16/2014								(9,884	)			(9,900	)
			0.590	%			08/05/2014				11/06/2014								(4,455	)			(4,459	)
			0.600	%			08/12/2014				11/12/2014								(6,164	)			(6,169	)
			1.230	%			07/07/2014				10/07/2014								(38,499	)			(38,612	)
			1.240	%			08/06/2014				11/06/2014								(15,227	)			(15,256	)
			1.240	%			08/12/2014				11/12/2014								(47,601	)			(47,683	)
			1.240	%			09/30/2014				11/06/2014								(2,869	)			(2,869	)
			1.320	%			04/22/2014				10/22/2014								(1,696	)			(1,706	)
			1.320	%			05/06/2014				11/06/2014								(6,000	)			(6,033	)
			1.320	%			05/27/2014				11/28/2014								(14,058	)			(14,123	)
			1.320	%			05/29/2014				12/01/2014								(9,038	)			(9,079	)
			1.320	%			06/11/2014				12/11/2014								(12,391	)			(12,442	)
			1.330	%			07/28/2014				01/28/2015								(13,145	)			(13,177	)
			1.330	%			08/25/2014				02/25/2015								(2,948	)			(2,952	)
RYL			1.581	%			09/25/2014				03/25/2015								(20,916	)			(20,922	)
			1.629	%			05/20/2014				11/20/2014								(8,617	)			(8,669	)
			1.632	%			05/20/2014				11/20/2014								(20,559	)			(20,684	)
SBI			0.983	%			09/04/2014				12/04/2014								(9,033	)			(9,040	)
			0.984	%			07/22/2014				10/22/2014								(15,849	)			(15,880	)
			1.080	%			09/18/2014				03/18/2015								(6,423	)			(6,426	)
SOG			1.254	%			09/23/2014				10/24/2014								(18,917	)			(18,922	)
			1.483	%			09/08/2014				12/08/2014								(18,358	)			(18,375	)
			1.484	%			08/07/2014				11/07/2014								(6,319	)			(6,333	)
			1.484	%			09/15/2014				12/15/2014								(30,981	)			(31,001	)
UBS			0.360	%			10/02/2014				11/03/2014				EUR				(15,476	)			(19,547	)
			0.400	%			09/02/2014				10/02/2014								(15,547	)			(19,643	)
			0.450	%			09/02/2014				12/02/2014				$				(12,445	)			(12,450	)
			0.580	%			09/08/2014				12/02/2014								(11,832	)			(11,836	)
			0.580	%			09/29/2014				12/02/2014								(1,695	)			(1,695	)
			0.620	%			09/18/2014				12/18/2014								(13,183	)			(13,186	)
			0.650	%			07/23/2014				10/23/2014				EUR				(8,155	)			(10,314	)
			0.650	%			09/16/2014				12/16/2014				$				(4,483	)			(4,484	)
ULW			0.500	%			07/23/2014				10/23/2014				EUR				(31,193	)			(39,438	)
			0.550	%			07/23/2014				10/23/2014								(817	)			(1,033	)
			0.600	%			07/23/2014				10/23/2014								(17,334	)			(21,921	)
			1.150	%			07/16/2014				10/16/2014				GBP				(10,619	)			(17,258	)
			1.634	%			04/24/2014				10/06/2014				$				(3,355	)			(3,380	)
Total Reverse Repurchase Agreements																						$	(1,226,382	)

 

(2)	The average amount of borrowings while outstanding during the period ended September 30, 2014 was $1,188,298 at a weighted average interest rate of 1.156%.

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		65

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of September 30, 2014:

 

(g)	Securities with an aggregate market value of $1,374,153 and cash of $479 have been pledged as collateral under the terms of the following master agreements as of September 30, 2014.

 

Counterparty		Repurchase Agreement Proceeds to be Received				Payable for Reverse Repurchase Agreements				Payable for Sale-Buyback Transactions				Payable for Short Sales				Total Borrowings and Other Financing Transactions				Collateral (Received)/ Pledged				Net Exposure (3)
Global/Master Repurchase Agreement
BCY		$	0			$	(281,323	)		$	0			$	0			$	(281,323	)		$	340,229			$	58,906
BOS			7,000				(38,484	)			0				0				(31,484	)			47,004				15,520
BPG			0				(9,460	)			0				0				(9,460	)			12,424				2,964
BRC			0				(43,271	)			0				0				(43,271	)			50,358				7,087
CFR			0				(3,121	)			0				0				(3,121	)			3,335				214
DBL			0				(48,060	)			0				0				(48,060	)			74,380				26,320
DEU			0				(10,797	)			0				0				(10,797	)			11,762				965
FOB			0				(109,976	)			0				0				(109,976	)			153,726				43,750
IND			17,400				0				0				0				17,400				(17,755	)			(355	)
JPS			0				(7,432	)			0				0				(7,432	)			9,807				2,375
MSC			0				(18,782	)			0				0				(18,782	)			21,792				3,010
RBC			0				(124,933	)			0				0				(124,933	)			156,092				31,159
RDR			0				(198,306	)			0				0				(198,306	)			254,675				56,369
RYL			0				(50,275	)			0				0				(50,275	)			69,427				19,152
SBI			0				(31,346	)			0				0				(31,346	)			36,954				5,608
SOG			0				(74,631	)			0				0				(74,631	)			95,382				20,751
UBS			0				(93,155	)			0				0				(93,155	)			101,496				8,341
ULW			0				(83,030	)			0				0				(83,030	)			94,746				11,716
Total Borrowings and Other Financing Transactions		$	24,400			$	(1,226,382	)		$	0			$	0

 

(3)

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

 

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

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

Pay/Receive Floating Rate		Floating Rate Index		Fixed Rate				Maturity Date				Notional Amount				Market Value				Unrealized Appreciation/ (Depreciation)				Variation Margin
																								Asset				Liability
Receive		3-Month USD-LIBOR			2.000	%			12/18/2018			$	282,700			$	(4,387	)		$	(1,498	)		$	90			$	0
Receive		3-Month USD-LIBOR			4.000	%			06/20/2022				134,000				(16,733	)			9,483				114				0
Pay		3-Month USD-LIBOR			3.000	%			06/18/2024				128,000				5,293				3,744				0				(174	)
Receive		3-Month USD-LIBOR			2.750	%			03/20/2043				102,200				8,834				6,786				554				0
Receive		3-Month USD-LIBOR			3.750	%			06/18/2044				23,200				(2,815	)			(2,764	)			145				0
Receive		3-Month USD-LIBOR			3.500	%			12/17/2044				44,200				(2,366	)			242				271				0
																$	(12,174	)		$	15,993			$	1,174			$	(174	)
Total Swap Agreements																$	(12,174	)		$	15,993			$	1,174			$	(174	)

 

66		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of September 30, 2014:

 

(i)	Securities with an aggregate market value of $15,066 and cash of $77 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of September 30, 2014.

 

		Financial Derivative Assets																Financial Derivative Liabilities
		Market Value		Variation Margin Asset								Total						Market Value		Variation Margin Liability						Total
		Purchased Options		Futures				Swap Agreements										Written Options		Futures				Swap Agreements
Total Exchange-Traded or Centrally Cleared		$  0		$	0			$	1,174			$	1,174					$  0		$	0			$  (174)		$  (174)

 

(j)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty		Settlement Month				Currency to be Delivered								Currency to be Received								Unrealized Appreciation/ (Depreciation)
																						Asset				Liability
BOA			10/2014				BRL				6,108			$					2,510			$	16			$	(1	)
			10/2014				EUR				31,052								40,000				780				0
			10/2014			$					2,679				BRL				6,107				0				(184	)
			11/2014								1,810								4,433				0				(15	)
BPS			10/2014				BRL				7,034			$					2,870				0				(4	)
			10/2014			$					3,061				BRL				7,034				0				(187	)
BRC			10/2014				BRL				15,537			$					6,890				543				0
			10/2014				GBP				189								308				2				0
			10/2014			$					6,339				BRL				15,537				8				0
			01/2015				BRL				6,813			$					2,884				170				0
CBK			10/2014				GBP				188								305				1				0
			10/2014			$					20,427				EUR				15,548				0				(789	)
			11/2014				GBP				1,340			$					2,185				13				0
			01/2015				BRL				19,574								8,291				494				0
DUB			10/2014				EUR				463								610				26				0
FBF			10/2014				BRL				58,966								25,411				1,321				0
			10/2014				EUR				464								612				26				0
			10/2014				GBP				185								306				7				0
			10/2014			$					25,042				BRL				58,966				12				(964	)
			10/2014								189				EUR				143				0				(8	)
			11/2014								1,215				BRL				2,946				0				(22	)
			01/2015				BRL				51,772			$					21,933				1,312				0
GLM			10/2014								91,754								39,646				2,160				0
			10/2014				EUR				355								457				9				0
			10/2014			$					37,491				BRL				91,754				48				(54	)
			01/2015				BRL				21,289			$					8,929				449				0
JPM			10/2014				EUR				5,465								7,041				139				0
			10/2014			$					45,419				EUR				35,116				0				(1,066	)
			10/2014								99,220				GBP				60,789				0				(672	)
			11/2014				EUR				480			$					612				5				0
			11/2014				GBP				60,789								99,194				674				0
			11/2014			$					3,139				GBP				1,924				0				(21	)

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		67

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

Counterparty		Settlement Month				Currency to be Delivered								Currency to be Received								Unrealized Appreciation/ (Depreciation)
																						Asset				Liability
MSB			10/2014				BRL				30,361			$					12,599			$	209			$	(13	)
			10/2014				EUR				112,001								147,830				6,367				0
			10/2014				GBP				60,228								99,890				2,251				0
			10/2014			$					12,813				BRL				30,361				0				(410	)
			11/2014				BRL				30,361			$					12,700				406				0
			01/2015								4,574								1,942				121				0
RBC			10/2014								5,537								2,259				0				(3	)
			10/2014			$					2,311				BRL				5,537				0				(49	)
UAG			10/2014				BRL				130,324			$					54,392				1,197				(48	)
			10/2014			$					55,807				BRL				130,324				0				(2,565	)
			10/2014								126,611				EUR				98,992				0				(1,579	)
			11/2014				BRL				107,852			$					45,488				1,816				0
			11/2014				EUR				98,992								126,636				1,578				0
			01/2015				BRL				23,022								9,913				743				0
Total Forward Foreign Currency Contracts																						$	22,903			$	(8,654	)

 

SWAP AGREEMENTS:

 

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

 

Counterparty		Index/Tranches		Fixed Deal Receive Rate				Maturity Date				Notional Amount  (2)				Premiums (Received)				Unrealized Appreciation				Swap Agreements, at Value (3)
																								Asset				Liability
FBF		ABX.HE.AA.6-2 Index			0.170%				05/25/2046			$	31,628			$	(28,109	)		$	15,464			$	0			$	(12,645	)

 

(1)

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

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

(3)

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

 

INTEREST RATE SWAPS

 

Counterparty		Pay/ Receive Floating Rate		Floating Rate Index		Fixed Rate				Maturity Date				Notional Amount				Premiums (Received)				Unrealized (Depreciation)				Swap Agreements, at Value
																										Asset				Liability
GLM		Pay		1-Year BRL-CDI			11.680%				01/04/2021				BRL  9,900			$	(14	)		$	(25	)		$	0			$	(39	)

 

68		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

 

TOTAL RETURN SWAPS ON CONVERTIBLE SECURITIES

 

Counterparty		Pay/ Receive		Underlying Reference		# of Shares				Financing Rate		Maturity Date				Notional Amount				Premiums Paid/ (Received)				Unrealized Appreciation/ (Depreciation)				Swap Agreements, at Value
																												Asset				Liability
DUB		Receive		OGX Petroleo e Gas Participaceos S.A.			5,941			Not Applicable, Fully Funded			02/11/2015			$	878			$	878			$	519			$	1,397			$	0
		Receive		OGX Petroleo e Gas Participaceos S.A.			4,067			Not Applicable, Fully Funded			04/11/2015				722				722				(2	)			720				0
																				$	1,600			$	517			$	2,117			$	0
Total Swap Agreements																				$	(26,523	)		$	15,956			$	2,117			$	(12,684	)

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of September 30, 2014:

 

(k)	Securities with an aggregate market value of $11,765 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of September 30, 2014.

 

		Financial Derivative Assets																		Financial Derivative Liabilities
Counterparty		Forward Foreign Currency Contracts				Purchased Options				Swap Agreements				Total Over the Counter						Forward Foreign Currency Contracts				Written Options				Swap Agreements				Total Over the Counter				Net Market Value of OTC Derivatives				Collateral (Received)/ Pledged				Net Exposure  (4)
BOA		$	796			$	0			$	0			$	796					$	(200	)		$	0			$	0			$	(200	)		$	596			$	(260	)		$	336
BPS			0				0				0				0						(191	)			0				0				(191	)			(191	)			0				(191	)
BRC			723				0				0				723						0				0				0				0				723				(580	)			143
CBK			508				0				0				508						(789	)			0				0				(789	)			(281	)			170				(111	)
DUB			26				0				2,117				2,143						0				0				0				0				2,143				(740	)			1,403
FBF			2,678				0				0				2,678						(994	)			0				(12,645	)			(13,639	)			(10,961	)			11,013				52
GLM			2,666				0				0				2,666						(54	)			0				(39	)			(93	)			2,573				(2,560	)			13
JPM			818				0				0				818						(1,759	)			0				0				(1,759	)			(941	)			582				(359	)
MSB			9,354				0				0				9,354						(423	)			0				0				(423	)			8,931				(8,000	)			931
RBC			0				0				0				0						(52	)			0				0				(52	)			(52	)			0				(52	)
UAG			5,334				0				0				5,334						(4,192	)			0				0				(4,192	)			1,142				(990	)			152
Total Over the Counter		$	22,903			$	0			$	2,117			$	25,020					$	(8,654	)		$	0			$	(12,684	)		$	(21,338	)

 

(4)

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

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		69

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

 

 

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Consolidated Statements of Assets and Liabilities as of September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	1,174			$	1,174
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	22,903			$	0			$	22,903
Swap Agreements			0				0				2,117				0				0				2,117
		$	0			$	0			$	2,117			$	22,903			$	0			$	25,020
		$	0			$	0			$	2,117			$	22,903			$	1,174			$	26,194
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	174			$	174
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	8,654			$	0			$	8,654
Swap Agreements			0				12,645				0				0				39				12,684
		$	0			$	12,645			$	0			$	8,654			$	39			$	21,338
		$	0			$	12,645			$	0			$	8,654			$	213			$	21,512

 

The Effect of Financial Derivative Instruments on the Consolidated Statements of Operations for the Period Ended September 30, 2014:

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Net Realized Gain (Loss) on Financial Derivative Instruments
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	(1,022	)		$	(1,022	)
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	(73	)		$	0			$	(73	)
Swap Agreements			0				5,649				0				0				0				5,649
		$	0			$	5,649			$	0			$	(73	)		$	0			$	5,576
		$	0			$	5,649			$	0			$	(73	)		$	(1,022	)		$	4,554

 

70		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

(Unaudited) September 30, 2014

 

 

		Derivatives not accounted for as hedging instruments
		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Exchange Contracts				Interest Rate Contracts				Total
Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments
Exchange-traded or centrally cleared
Swap Agreements		$	0			$	0			$	0			$	0			$	(10,164	)		$	(10,164	)
Over the counter
Forward Foreign Currency Contracts		$	0			$	0			$	0			$	18,556			$	0			$	18,556
Swap Agreements			0				780				497				0				(25	)			1,252
		$	0			$	780			$	497			$	18,556			$	(25	)		$	19,808
		$	0			$	780			$	497			$	18,556			$	(10,189	)		$	9,644

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of September 30, 2014 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory		Level 1				Level 2				Level 3				Fair Value at 09/30/2014
Investments in Securities, at Value
Bank Loan Obligations		$	0			$	15,801			$	8,757			$	24,558
Corporate Bonds & Notes
Banking & Finance			0				226,627				27,799				254,426
Industrials			0				159,428				10,350				169,778
Utilities			0				70,111				0				70,111
U.S. Government Agencies			0				36,726				0				36,726
U.S. Treasury Obligations			0				19,436				0				19,436
Mortgage-Backed Securities			0				1,497,046				39,372				1,536,418
Asset-Backed Securities			0				355,209				31,110				386,319
Sovereign Issues			0				96,658				0				96,658
Common Stocks
Financials			716				0				0				716
Utilities			8,073				0				0				8,073
Preferred Securities
Banking & Finance			0				3,847				0				3,847
Short-Term Instruments
Repurchase Agreements			0				24,400				0				24,400
Short-Term Notes			0				79,784				0				79,784
U.S. Treasury Bills			0				12,534				0				12,534
Total Investments		$	8,789			$	2,597,607			$	117,388			$	2,723,784
Financial Derivative Instruments - Assets
Exchange-traded or centrally cleared			0				1,174				0				1,174
Over the counter			0				22,903				2,117				25,020
		$	0			$	24,077			$	2,117			$	26,194
Financial Derivative Instruments - Liabilities
Exchange-traded or centrally cleared			0				(174	)			0				(174	)
Over the counter			0				(21,338	)			0				(21,338	)
		$	0			$	(21,512	)		$	0			$	(21,512	)
Totals		$	8,789			$	2,600,172			$	119,505			$	2,728,466

 

See Accompanying Notes		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		71

---

Table of Contents

Consolidated Schedule of Investments PIMCO Dynamic Income Fund (Cont.)

 

(Unaudited) September 30, 2014

 

 

 

There were no significant transfers between Level 1 and 2 during the period ended September 30, 2014.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended September 30, 2014:

 

Category and Subcategory		Beginning Balance at 03/31/2014				Net Purchases  (1)				Net Sales  (1)				Accrued Discounts/ (Premiums)				Realized Gain/ (Loss)				Net Change in Unrealized Appreciation/ (Depreciation) (2)				Transfers into Level 3				Transfers out of Level 3				Ending Balance at 09/30/2014				Net Change in  Unrealized Appreciation/ (Depreciation) on Investments Held at 09/30/2014 (2)
Investments in Securities, at Value
Bank Loan Obligations		$	8,398			$	509			$	0			$	62			$	0			$	(212	)		$	0			$	0			$	8,757			$	(212	)
Corporate Bonds & Notes
Banking & Finance			0				27,244				0				20				0				535				0				0				27,799				535
Industrials			1,253				10,200				0				0				0				(351	)			0				(752	)			10,350				150
Mortgage-Backed Securities			8,701				420				(1,074	)			4				94				(55	)			39,050				(7,768	)			39,372				(27	)
Asset-Backed Securities			89,615				0				(5,103	)			1,149				3,005				6,558				0				(64,114	)			31,110				0
		$	107,967			$	38,373			$	(6,177	)		$	1,235			$	3,099			$	6,475			$	39,050			$	(72,634	)		$	117,388			$	446
Financial Derivative Instruments - Assets
Over the counter		$	0			$	0			$	0			$	0			$	0			$	2,117			$	0			$	0			$	2,117			$	2,117
Totals		$	107,967			$	38,373			$	(6,177	)		$	1,235			$	3,099			$	8,592			$	39,050			$	(72,634	)		$	119,505			$	2,563

 

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

 

Category and Subcategory

Ending Balance at 09/30/2014

Valuation Technique

Unobservable Inputs

Input Value(s) (% Unless Noted Otherwise)

Investments in Securities, at Value

Bank Loan Obligations

$

8,757

Third Party Vendor

Broker Quote

83.00-108.50

Corporate Bonds & Notes

Banking & Finance

4,524

Benchmark Pricing

Base Price

100.00

13,575

Discounted Cash Flows

Credit Rating

B-BBB

OAS Spread

600-950bps

Yield

8.75-9.75

9,700

Market Comparable Companies

Credit Rating

B-BB

Net Debt to Equity Ratio

8-10x

Yield

8.00-10.00

Industrials

10,350

Benchmark Pricing

Base Price

102.67

Mortgage-Backed Securities

39,050

Benchmark Pricing

Base Price

102.02

322

Other Valuation Techniques (3)

—

—

Asset-Backed Securities

31,110

Indicative Market Quotation

Broker Quote

100.00

Financial Derivative Instruments - Assets

Over the counter

2,117

Indicative Market Quotation

Broker Quote

99.76-159.06

Total

$

119,505

 

(1)	Net Purchases and Sales for Financial Derivative Instruments may include payments made or received upon entering into swap agreements to compensate for differences between the stated terms of the swap agreement and prevailing market conditions.

(2)	Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at September 30, 2014 may be due to an investment no longer held or categorized as level 3 at period end.

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

 

†	All or a portion of this security is owned by PDILS I LLC, which is a 100% owned subsidiary of the Fund.

 

72		PIMCO CLOSED-END FUNDS				See Accompanying Notes

---

Table of Contents

Notes to Financial Statements

 

(Unaudited) September 30, 2014

 

1. ORGANIZATION

 

PIMCO Global StocksPLUS^® & Income Fund, PIMCO High Income Fund and PIMCO Dynamic Income Fund (each a “Fund” and collectively the “Funds”) were organized as Massachusetts business trusts on January 19, 2011, February 16, 2005 and February 18, 2003, respectively, as closed-end management investment companies registered under the Investment Company Act of 1940, as amended (the “Act”) and the rules and regulations thereunder. PIMCO Global StocksPLUS^® & Income Fund and PIMCO High Income Fund are classified and managed as diversified funds, and PIMCO Dynamic Income Fund is classified and managed as a non-diversified fund. Pacific Investment Management Company LLC (“PIMCO” or the “Manager”) serves as the Funds’ investment manager.

 

Prior to the close of business on September 5, 2014, Allianz Global Investors Fund Management LLC (“AGIFM”) and PIMCO served as the Funds’ investment manager and sub-adviser, respectively. Effective at the close of business on September 5, 2014, each Fund entered into a new investment management agreement (the “Agreement”) with PIMCO, pursuant to which PIMCO replaced AGIFM as the investment manager to the Funds. Under the Agreement, PIMCO continues to provide the day-to-day portfolio management services it provided to each Fund as its sub-adviser and also assumed responsibility for providing the supervisory and administrative services previously provided by AGIFM to each Fund as its investment manager. The same investment professionals that were responsible for managing each Fund’s portfolio prior to the transition continue to do so following the transition. PIMCO personnel have replaced AGIFM personnel as Fund officers and in other roles to provide and oversee the administrative, accounting/financial reporting, compliance, legal, marketing, transfer agency, shareholder servicing and other services required for the daily operations of each Fund. Please see “Fees and Expenses” below for additional information.

 

Each Fund has authorized an unlimited number of Common Shares at a par value of $0.00001 per share. PIMCO Dynamic Income Fund issued 40,600,000 shares of common stock in its initial public offering. An additional 4,458,352 shares were issued in connection with the underwriter’s over-allotment option. These shares were all issued at $25.00 per share before an underwriting discount of $1.125 per share. Offering costs of $1,551,500 (representing approximately $0.03 per share) were offset against the proceeds of the offering and over-allotment option and have been charged to paid in capital in excess of par.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by each Fund the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

(a) Securities Transactions and Investment Income  Securities transactions are recorded as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled 15 days or more after the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		73

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

passed, which are recorded as soon as a Fund is informed of the ex-dividend date. Interest income, adjusted for the accretion of discounts and amortization of premiums, is recorded on the accrual basis from settlement date. For convertible securities, premiums attributable to the conversion feature are not amortized. Estimated tax liabilities on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments on the Statements of Operations, as appropriate. Tax liabilities realized as a result of such security sales are reflected as a component of net realized gain/loss on investments on the Statements of Operations. Paydown gains and losses on mortgage-related and other asset-backed securities are recorded as components of interest income on the Statements of Operations. Income or short-term capital gain distributions received from underlying funds are recorded as dividend income. Long-term capital gain distributions received from underlying funds are recorded as realized gains.

 

Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is probable.

 

(b) Cash and Foreign Currency  The functional and reporting currency for the Funds is the U.S. dollar. The market values of foreign securities, currency holdings and other assets and liabilities are translated into U.S. dollars based on the current exchange rates each business day. Purchases and sales of securities and income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Funds do not separately report the effects of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and net changes in unrealized gain or loss from investments on the Statements of Operations. The Funds may invest in foreign currency-denominated securities and may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through a forward foreign currency contract (see financial derivative instruments). Realized foreign exchange gains or losses arising from sales of spot foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid are included in net realized gain or loss on foreign currency transactions on the Statements of Operations. Net unrealized foreign exchange gains and losses arising from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period are included in net change in unrealized appreciation or depreciation on foreign currency assets and liabilities on the Statements of Operations.

 

(c) Distributions—Common Shares  The Funds intend to declare distributions from net investment income and gains from the sale of portfolio securities and other sources to common shareholders monthly. Net realized capital gains earned by each Fund, if any, will be distributed no less frequently than once each year. A Fund may engage in investment strategies, including the use of derivatives, to, among other things, generate current, distributable income without regard to possible declines in the Fund’s net asset value. A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains for monthly distributions even in situations when the Fund has experienced a decline in net assets, including losses due to adverse

 

74		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

changes in securities markets or the Fund’s portfolio of investments, including derivatives. Consequently, common shareholders may receive distributions and owe tax at a time when their investment in a Fund has declined in value, which tax may be at ordinary income rates. Also, the tax treatment of certain derivatives may be open to different interpretations. Any recharacterization of payments made or received by a Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.

 

Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. Differences between tax regulations and U.S. GAAP may cause timing differences between income and capital gain recognition. Examples of events that give rise to timing differences include wash sales, straddles and capital loss carryforwards. Further, the character of investment income and capital gains may be different for certain transactions under the two methods of accounting. Examples of characterization differences include the treatment of paydowns on mortgage-backed securities, swaps, foreign currency transactions and contingent debt instruments. As a result, income distributions and capital gain distributions declared during a fiscal period may differ significantly from the net investment income (loss) and realized gains (losses) reported on each Fund’s annual financial statements presented under U.S. GAAP.

 

Distributions classified as a tax basis return of capital, if any, are reflected on the accompanying Statements of Changes in Net Assets and have been recorded to paid in capital. In addition, other amounts have been reclassified between undistributed net investment income, accumulated undistributed net realized gains or losses and/or paid in capital to more appropriately conform financial accounting to tax characterizations of distributions.

 

(d) Statements of Cash Flows  U.S. GAAP requires entities providing financial statements that report both financial position and results of operations to also provide a statement of cash flows for each period for which results of operations are provided, but exempts investment companies meeting certain conditions. One of the conditions is that substantially all of the enterprise’s investments were carried at fair value during the period and classified as Level 1 or Level 2 in the fair value hierarchy in accordance with the requirements of U.S. GAAP. Another condition is that the enterprise had little or no debt, based on the average debt outstanding during the period, in relation to average total assets. Funds with certain degrees of borrowing activity, typically through the use of reverse repurchase agreements, sale-buyback transactions or short sale transactions, have been determined to be at a level requiring a Statement of Cash Flows. Statements of Cash Flows, as applicable, have been prepared using the indirect method which requires net change in net assets resulting from operations to be adjusted to reconcile to net cash flows from operating activities.

 

(e) New Accounting Pronouncements  In June 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) providing updated guidance for assessing whether an entity is an investment company and for the measurement of noncontrolling ownership interests in other investment companies. This update is effective prospectively during interim or annual periods beginning on or after December 15, 2013. The Funds have adopted the ASU for the fiscal year ended March 31, 2014 as it follows the investment company reporting requirements under U.S. GAAP, and it did not have an impact on the Funds’ financial statements.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		75

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

 

In June 2014, the FASB issued an ASU that expands secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as sales, in order to provide financial statement users with information to compare to similar transactions accounted for as secured borrowings. The ASU is effective prospectively during interim or annual periods beginning after December 15, 2014. At this time, management is evaluating the implications of these changes on the financial statements.

 

3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

 

(a) Investment Valuation Policies  The Net Asset Value (“NAV”) of a Fund’s shares is valued as of the close of regular trading (normally 4:00 p.m., Eastern time) (the “NYSE Close”) on each day that the New York Stock Exchange (“NYSE”) is open (each a “Business Day”). Information that becomes known to a Fund or its agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that day.

 

For purposes of calculating the NAV, portfolio securities and other financial derivative instruments are valued on each Business Day using valuation methods as adopted by the Board of Trustees (the “Board”) of each Fund. The Board has formed a Valuation Committee, whose function is to monitor the valuation of portfolio securities and other financial derivative instruments and, as required by the Funds’ valuation policies, determine in good faith the fair value of the Funds’ portfolio holdings after consideration of all relevant factors, including recommendations provided by the Manager. The Board has delegated responsibility for applying the valuation methods to the Manager. The Manager monitors the continual appropriateness of methods applied and determines if adjustments should be made in light of market factor changes and events affecting issuers.

 

Where market quotes are readily available, fair market value is generally determined on the basis of official closing prices or the last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services. Where market quotes are not readily available, portfolio securities and other financial derivative instruments are valued at fair value, as determined in good faith by the Board, its Valuation Committee, or the Manager pursuant to instructions from the Board or its Valuation Committee. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of a Fund’s securities or financial derivative instruments. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which securities trade do not open for trading for the entire day and no other market prices are available. The Board has delegated to the Manager the responsibility for monitoring significant events that may materially affect the values of a Fund’s securities or financial derivative instruments and for determining whether the value of the applicable securities or financial derivative instruments should be re-evaluated in light of such significant events.

 

The Board has adopted methods for valuing securities and other financial derivative instruments that may require fair valuation under particular circumstances. The Manager monitors the continual appropriateness of fair valuation methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Manager determines that a fair valuation method may no longer be appropriate, another valuation method may be selected, or

 

76		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

the Valuation Committee may take any appropriate action in accordance with procedures set forth by the Board. The Board reviews the appropriateness of the valuation methods from time to time, and these methods may be amended or supplemented from time to time by the Valuation Committee.

 

In circumstances in which daily market quotes are not readily available, investments may be valued pursuant to guidelines established by the Board. In the event that the security or asset cannot be valued pursuant to the established guidelines, the value of the security or other financial derivative instrument will be determined in good faith by the Valuation Committee of the Board, generally based upon recommendations provided by PIMCO. These methods may require subjective determinations about the value of a security. While each Fund’s policy is intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing, the Funds cannot guarantee that values determined by the Board or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.

 

(b) Fair Value Hierarchy  U.S. GAAP describes fair market value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes inputs to valuation methods and requires disclosure of the fair value hierarchy, separately for each major category of assets and liabilities, that segregates fair value measurements into levels (Level 1, 2, and 3). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Levels 1, 2, and 3 of the fair value hierarchy are defined as follows:

 

n

Level 1—Inputs using (unadjusted) quoted prices in active markets or exchanges for identical assets and liabilities.

 

n

Level 2—Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

 

n

Level 3—Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments.

 

Assets or liabilities categorized as Level 2 or 3 as of period end have been transferred between Levels 2 and 3 since the prior period due to changes in the valuation method utilized in valuing the investments. Transfers from Level 2 to Level 3 are a result of a change, in the normal course of business, from the use of valuation methods used by third-party pricing services (Level 2) to the use of a broker quote or valuation technique which utilizes significant unobservable inputs due to an absence of current or reliable market-based data (Level 3). Transfers from Level 3 to Level 2 are a result of the availability of current and reliable market-based data provided by third-party pricing services or other valuation techniques which utilize significant observable inputs. In accordance with

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		77

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

the requirements of U.S. GAAP, the amounts of transfers between Levels 1 and 2 and transfers in and out of Level 3, if material, are disclosed in the Notes to Schedule of Investments for each respective Fund.

 

For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. The end of period timing recognition is used for the transfers between Levels of the Fund’s assets and liabilities. Additionally, U.S. GAAP requires quantitative information regarding the significant unobservable inputs used in the determination of fair value of assets or liabilities categorized as Level 3 in the fair value hierarchy. In accordance with the requirements of U.S. GAAP, a fair value hierarchy and, if material, a Level 3 reconciliation and details of significant unobservable inputs, have been included in the Notes to Schedule of Investments for each respective Fund.

 

(c) Valuation Techniques and the Fair Value Hierarchy Level 1 and Level 2 trading assets and trading liabilities, at fair market value  The valuation methods (or “techniques”) and significant inputs used in determining the fair market values of portfolio securities or financial derivative instruments categorized as Level 1 and Level 2 of the fair value hierarchy are as follows:

 

Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued by pricing service providers that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The service providers’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Fixed income securities purchased on a delayed-delivery basis or as a repurchase commitment in a sale-buyback transaction are marked to market daily until settlement at the forward settlement date and are categorized as Level 2 of the fair value hierarchy.

 

Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by pricing service providers that use broker-dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows and market-based yield spreads for each tranche, and incorporate deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Common stocks, exchange-traded funds, exchange-traded notes and financial derivative instruments, such as futures contracts or options on futures that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.

 

78		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from pricing service providers. As a result, the NAV of a Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed,. Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the NYSE Close. These securities are valued using pricing service providers that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are also categorized as Level 2 of the fair value hierarchy.

 

Short-term investments having a maturity of 60 days or less and repurchase agreements are generally valued at amortized cost which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy.

 

Equity exchange-traded options and over the counter financial derivative instruments, such as foreign currency contracts, options contracts, or swap agreements, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. These contracts are normally valued by independent pricing service providers. Depending on the product and the terms of the transaction, financial derivative instruments can be valued by a pricing service provider using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as quoted prices, issuer details, indices, bid/ask spreads, interest rates, implied volatilities, yield curves, dividends and exchange rates. Financial derivative instruments that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Centrally cleared swaps listed or traded on a multilateral or trade facility platform, such as a registered exchange, are valued at the daily settlement price determined by the respective exchange. For centrally cleared credit default swaps the clearing facility requires its members to provide actionable price levels across complete term structures. These levels, along with external third-party prices, are used to produce daily settlement prices. These securities are categorized as Level 2 of the fair value hierarchy. Centrally cleared interest rate swaps are valued using a pricing model that references the underlying rates including the overnight index swap rate and London Interbank Offered Rate (“LIBOR”) forward rate to produce the daily settlement price. These securities are categorized as Level 2 of the fair value hierarchy.

 

Level 3 trading assets and trading liabilities, at fair value  When a fair valuation method is applied by PIMCO that uses significant unobservable inputs, securities will be priced by a method that the Board or persons acting at their direction believe reflects fair value and are categorized as Level 3 of the fair value hierarchy. The valuation techniques and significant inputs used in determining the fair values of portfolio assets and liabilities categorized as Level 3 of the fair value hierarchy are as follows:

 

Benchmark pricing procedures set the base price of a fixed income security and subsequently adjust the price proportionally to market value changes of a pre-determined security deemed to be

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		79

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Committee. Significant changes in the unobservable inputs of the benchmark pricing process (the base price) would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy. The validity of the fair value is reviewed by PIMCO on a periodic basis and may be amended as the availability of market data indicates a material change.

 

If third-party evaluated vendor pricing is not available or not deemed to be indicative of fair value, the Manager may elect to obtain indicative market quotations (“broker quotes”) directly from the broker-dealer or passed through from a third-party vendor. In the event that fair value is based upon a single sourced broker quote, these securities are categorized as Level 3 of the fair value hierarchy. Broker quotes are typically received from established market participants. Although independently received, the Manager does not have the transparency to view the underlying inputs which support the market quotation. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security.

 

Discounted cash flow valuation uses an internal analysis based on the portfolio manager’s expectation of principal and interest payments, fees and costs, and other unobservable inputs which may include credit rating, yield and option adjusted spread (“OAS”) of a security. Significant changes in the unobservable inputs of the models would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

Market comparable companies valuation estimates fair value by using an internal model that utilizes comparable companies’ inputs such as the company’s credit rating, debt to equity ratios, market multiples derived from earnings before interest, taxes, depreciation and amortization (“EBITDA”), manager assumptions regarding such comparable companies and requested non-public statements from the underlying company. Significant changes in the unobservable inputs would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

The validity of the fair value is reviewed by PIMCO on a periodic basis and may be amended as the availability of market data indicates a material change.

 

4. SECURITIES AND OTHER INVESTMENTS

 

(a) Investments in Securities

Delayed-Delivery Transactions  Certain Funds may purchase or sell securities on a delayed-delivery basis. These transactions involve a commitment by a Fund to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery transactions are outstanding, a Fund will designate or receive as collateral liquid assets in an amount sufficient to meet the purchase price or respective obligations. When purchasing a security on a delayed-delivery basis, a Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its NAV. A Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, which may result in a realized gain or loss. When

 

80		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

a Fund has sold a security on a delayed-delivery basis, the Fund does not participate in future gains and losses with respect to the security.

 

Loan Participations, Assignments, and Originations  Certain Funds may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties or investments in or originations of loans by a Fund or Funds. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. A Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. When a Fund purchases assignments from lenders it acquires direct rights against the borrower of the loan. These loans may include participations in bridge loans, which are loans taken out by borrowers for a short period (typically less than one year) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high yield bonds issued for the purpose of acquisitions.

 

The types of loans and related investments in which the Funds may invest include, among others, senior loans, subordinated loans (including second lien loans, B-Notes and mezzanine loans), whole loans, commercial real estate and other commercial loans and structured loans. The Funds may originate loans or acquire direct interests in loans through primary loan distributions and/or in private transactions. In the case of subordinated loans, there may be significant indebtedness ranking ahead of the borrower’s obligation to the holder of such a loan, including in the event of the borrower’s insolvency. Mezzanine loans are typically secured by a pledge of an equity interest in the mortgage borrower that owns the real estate rather than an interest in a mortgage.

 

Investments in loans may include unfunded loan commitments, which are contractual obligations for funding. Unfunded loan commitments may include revolving credit facilities, which may obligate a Fund to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the committed amount may not be utilized by the borrower. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt of payments by the lender from the borrower. A Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan. In certain circumstances, a Fund may receive a penalty fee upon the prepayment of a loan by a borrower. Fees earned or paid are recorded as a component of interest income or interest expense, respectively, on the Statements of Operations. As of September 30, 2014, the Funds had no unfunded loan commitments outstanding.

 

Mortgage-Related and Other Asset-Backed Securities  Certain Funds may invest in mortgage-related and other asset-backed securities that directly or indirectly represent a participation in, or are secured by and payable from, loans on real property. Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. These securities provide a monthly payment which consists of both interest and principal. Interest may be determined by fixed or adjustable rates. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		81

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

payment of principal and interest of certain mortgage-related securities is guaranteed with the full faith and credit of the U.S. Government. Pools created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Many of the risks of investing in mortgage-related securities secured by commercial mortgage loans reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make lease payments, and the ability of a property to attract and retain tenants. These securities may be less liquid and may exhibit greater price volatility than other types of mortgage-related or other asset-backed securities. Other asset-backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans.

 

Collateralized Mortgage Obligations  (“CMOs”) are debt obligations of a legal entity that are collateralized by mortgages and divided into classes. CMOs are structured into multiple classes, often referred to as “tranches,” with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Commercial Mortgage-Backed Securities (“CMBS”) include securities that reflect an interest in, and are secured by, mortgage loans on commercial real property. Many of the risks of investing in CMBS reflect the risks of investing in the real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. CMOs and CMBS may be less liquid and may exhibit greater price volatility than other types of mortgage-related or asset-backed securities.

 

Stripped Mortgage-Backed Securities  (“SMBS”) are derivative multi-class mortgage securities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A SMBS will have one class that will receive all of the interest (the interest-only or “IO” class), while the other class will receive the entire principal (the principal-only or “PO” class). Payments received for IOs are included in interest income on the Statements of Operations. Because no principal will be received at the maturity of an IO, adjustments are made to the cost of the security on a monthly basis until maturity. These adjustments are included in interest income on the Statements of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

 

Collateralized Debt Obligations  (“CDOs”) include Collateralized Bond Obligations (“CBOs”), Collateralized Loan Obligations (“CLOs”) and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. CDOs carry additional risks including, but not limited to (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments, (ii) the collateral may decline in value or default, (iii) a Fund may invest in CDOs that are subordinate to other classes, and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

82		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Payment In-Kind Securities  Certain Funds may invest in payment in-kind securities (“PIKs”). PIKs may give the issuer the option at each interest payment date of making interest payments in either cash or additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statements of Assets and Liabilities.

 

Restricted Securities  Certain Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities may be sold privately, but are required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933. Disposal of restricted securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to achieve. Restricted securities outstanding at September 30, 2014 are disclosed in the Notes to Schedules of Investments.

 

U.S. Government Agencies or Government-Sponsored Enterprises  Certain Funds may invest in securities of U.S. Government agencies or government-sponsored enterprises. U.S. Government securities are obligations of and, in certain cases, guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), are supported by the full faith and credit of the U.S. Government; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury (the “U.S. Treasury”); and others, such as those of the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations. U.S. Government securities may include zero coupon securities. Zero coupon securities do not distribute interest on a current basis and tend to be subject to a greater risk than interest paying securities.

 

Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). FNMA is a government-sponsored corporation. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Government.

 

When-Issued Transactions  Certain Funds may purchase or sell securities on a when-issued basis. These transactions are made conditionally because a security, although authorized, has not yet been issued in the market. A commitment is made by a Fund to purchase or sell these securities for a predetermined price or yield, with payment and delivery taking place beyond the customary

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		83

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

settlement period. A Fund may sell when-issued securities before they are delivered, which may result in a realized gain or loss.

 

5. BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

The following disclosures contain information on a Fund’s ability to lend or borrow cash or securities to the extent permitted under the Act, which may be viewed as borrowing or financing transactions by a Fund. The location and fair value amounts of these instruments are described below. For a detailed description of credit and counterparty risks that can be associated with borrowings and other financing transactions, please see Note 7, Principal Risks.

 

(a) Repurchase Agreements  Certain Funds may engage in repurchase agreements. Under the terms of a typical repurchase agreement, a Fund takes possession of an underlying debt obligation (collateral) subject to an obligation of the seller to repurchase, and a Fund to resell, the obligation at an agreed-upon price and time. The underlying securities for all repurchase agreements are held in safekeeping at the Fund’s custodian or designated subcustodians under tri-party repurchase agreements. The market value of the collateral must be equal to or exceed the total amount of the repurchase obligations, including interest. Repurchase agreements including accrued interest, are included on the Statements of Assets and Liabilities. Interest earned is recorded as a component of interest income on the Statements of Operations. In periods of increased demand for collateral, a Fund may pay a fee for receipt of collateral, which may result in interest expense to the Fund.

 

(b) Reverse Repurchase Agreements  Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement, a Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. A Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by a Fund to counterparties are reflected as a liability on the Statements of Assets and Liabilities. Interest payments made by a Fund to counterparties are recorded as a component of interest expense on the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.

 

6. FINANCIAL DERIVATIVE INSTRUMENTS

 

The following disclosures contain information on how and why the Funds may use financial derivative instruments, the credit-risk-related contingent features in certain financial derivative instruments, and how financial derivative instruments affect the Funds’ financial position, results of operations and cash flows. The location and fair value amounts of these instruments on the Statements of Assets and Liabilities and the realized and changes in unrealized gains and losses on the Statements of Operations, each categorized by type of financial derivative contract and related risk exposure, are included in a table in the Notes to Schedules of Investments. The financial derivative instruments outstanding as of period end and the amounts of realized and changes in unrealized gains and losses on financial derivative instruments during the period, as disclosed in the Notes to Schedules of Investments, serve as indicators of the volume of financial derivative activity for the Funds.

 

84		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

 

PIMCO Global StocksPLUS^® & Income Fund is subject to regulation as a commodity pool under the Commodity Exchange Act pursuant to rule changes implemented in 2013 by the Commodity Futures Trading Commission (the “CFTC”). The Manager has registered with the CFTC as a Commodity Pool Operator, and a Commodity Trading Adviser with respect to the Fund, and is a member of the National Futures Association. As a result, additional CFTC-mandated disclosure, reporting and recordkeeping obligations have begun to apply with respect to PIMCO Global StocksPLUS^® & Income Fund. Compliance with the CFTC’s regulatory requirements could increase PIMCO Global StocksPLUS^® & Income Fund’s expenses, adversely affecting its total return.

 

(a) Forward Foreign Currency Contracts  Certain Funds may enter into forward foreign currency contracts in connection with settling planned purchases or sales of securities, to hedge the currency exposure associated with some or all of a Fund’s securities or as a part of an investment strategy. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked to market daily and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed are recorded upon delivery or receipt of the currency. These contracts may involve market risk in excess of the unrealized gain or loss reflected on the Statements of Assets and Liabilities. In addition, a Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. In connection with these contracts, cash or securities may be identified as collateral in accordance with the terms of the respective contracts.

 

(b) Futures Contracts  Certain Funds may enter into futures contracts. A Fund may use futures contracts to manage its exposure to the securities markets or to movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the securities held by a Fund and the prices of futures contracts and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, a Fund is required to deposit with its futures broker an amount of cash, U.S. Government and Agency Obligations, or select sovereign debt, in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statements of Assets and Liabilities.

 

(c) Options Contracts  Certain Funds may write call and put options on securities and financial derivative instruments they own or in which they may invest. Writing put options tends to increase a Fund’s exposure to the underlying instrument. Writing call options tends to decrease a Fund’s exposure to the underlying instrument. When a Fund writes a call or put, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. These liabilities are included on the Statements of Assets and Liabilities. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		85

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

against amounts paid on the underlying futures, swap, security or currency transaction to determine the realized gain or loss. Certain options may be written with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. A Fund as a writer of an option has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk a Fund may not be able to enter into a closing transaction because of an illiquid market.

 

Certain Funds may also purchase put and call options. Purchasing call options tends to increase a Fund’s exposure to the underlying instrument. Purchasing put options tends to decrease a Fund’s exposure to the underlying instrument. A Fund pays a premium which is included as an asset on the Statements of Assets and Liabilities and subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss when the underlying transaction is executed.

 

Options on Exchange-Traded Futures Contracts  Certain Funds may write or purchase options on exchange-traded futures contracts (“Futures Option”) to hedge an existing position or future investment, for speculative purposes or to manage exposure to market movements. A Futures Option is an option contract in which the underlying instrument is a single futures contract.

 

(d) Swap Agreements  Certain Funds may invest in swap agreements. Swap agreements are bilaterally negotiated agreements between a Fund and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements are privately negotiated in the over the counter market (“OTC swaps”) or may be executed in a multilateral or other trade facility platform, such as a registered exchange (“centrally cleared swaps”). A Fund may enter into asset, credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements to manage its exposure to credit, currency, interest rate, commodity, equity and inflation risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

 

Swaps are marked to market daily based upon values from third-party vendors, which may include a registered exchange, or quotations from market makers to the extent available. In the event that market quotes are not readily available and the swap cannot be valued pursuant to one of the valuation methods, the value of the swap will be determined in good faith by the Valuation Committee of the Board, generally based upon recommendations provided by PIMCO. Changes in market value, if any, are reflected as a component of net change in unrealized appreciation/(depreciation) on the Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value as appropriate (“variation margin”) on the Statements of Assets and Liabilities. OTC swap payments received or

 

86		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

paid at the beginning of the measurement period are included on the Statements of Assets and Liabilities and represent premiums paid or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Upfront premiums received (paid) are initially recorded as liabilities (assets) and subsequently marked to market to reflect the current value of the swap. These upfront premiums are recorded as realized gains or losses on the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gains or losses on the Statements of Operations.

 

Entering into these agreements involves, to varying degrees, elements of interest, credit, market and documentation risk in excess of the amounts recognized on the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates.

 

A Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between a Fund and the counterparty and by the posting of collateral to a Fund to cover a Fund’s exposure to the counterparty.

 

Credit Default Swap Agreements  Credit default swap agreements involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event of a default or other credit event for the referenced entity, obligation or index. As a seller of protection on credit default swap agreements, a Fund will generally receive from the buyer of protection a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.

 

If a Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If a Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		87

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value.

 

Credit default swap agreements on asset-backed securities involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. Deliverable obligations in most instances would be limited to the specific referenced obligation, as performance for asset-backed securities can vary across deals. Prepayments, principal paydowns, and other writedown or loss events on the underlying mortgage loans will reduce the outstanding principal balance of the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement and the notional amount for the swap agreement will be adjusted by corresponding amounts. A Fund may use credit default swaps on asset-backed securities to provide a measure of protection against defaults of the referenced obligation or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default.

 

Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset-backed securities, emerging markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. A Fund may use credit default swaps on credit indices to hedge a portfolio of credit default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect. Credit default swaps on indices are instruments for protecting investors owning bonds against default, and traders use them to speculate on changes in credit quality.

 

The maximum potential amount of future payments (undiscounted) that a Fund as a seller of protection could be required to make under a credit default swap agreement equals the notional amount of the agreement. Notional amounts of each individual credit default swap agreement outstanding as of period end for which a Fund is the seller of protection are disclosed in the Notes to Schedules of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by a Fund for the same referenced entity or entities.

 

Interest Rate Swap Agreements  Certain Funds are subject to interest rate risk exposure in the normal course of pursuing their investment objectives. Because a Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to

 

88		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

maintain its ability to generate income at prevailing market rates, a Fund may enter into interest rate swap agreements. Interest rate swap agreements involve the exchange by a Fund with another party for their respective commitment to pay or receive interest on the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the buyer pays an upfront fee in consideration for the right to early terminate the swap transaction in whole, at zero costs and at a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different segments of money markets.

 

Total Return Swap Agreements  Certain Funds may enter into total return swap agreements to gain or mitigate exposure to the underlying reference. Total return swap agreements involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference and on a fixed or variable interest rate. Total return swap agreements may involve commitments to pay interest in exchange for a market-linked return. One counterparty pays out the total return of a specific reference asset, which may include an underlying equity, index, or bond, and in return receives a fixed or variable rate. At the maturity date, a net cash flow is exchanged where the total return is equivalent to the return of the underlying reference less a financing rate, if any. As a receiver, a Fund would receive payments based on any positive total return and would owe payments in the event of a negative total return. As the payer, a Fund would owe payments on any net positive total return, and would receive payment in the event of a negative total return.

 

7. PRINCIPAL RISKS

 

In the normal course of business the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to such things as changes in the market (market risk) or failure or inability of the other party to a transaction to perform (credit and counterparty risk). See below for a detailed description of select principal risks. For a more comprehensive list of potential risks the Funds may be subject to, please see the Important Information About the Funds.

 

Market Risks  A Fund’s investments in financial derivatives and other financial instruments expose the Fund to various risks such as, but not limited to, interest rate, foreign currency, equity and commodity risks.

 

Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by a Fund is likely to decrease. Interest rate changes can be sudden and unpredictable, and a Fund may lose money if these changes are not anticipated by Fund management. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		89

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a security’s market price to interest rate (i.e. yield) movements. At present, the U.S. is experiencing historically low interest rates. This, combined with recent economic recovery and the Federal Reserve Board’s tapering of its quantitative easing program, could potentially increase the probability of an upward interest rate environment in the near future. Further, while U.S. bond markets have steadily grown over the past three decades, dealer “market making” ability has remained relatively stagnant. Given the importance of intermediary “market making” in creating a robust and active market, fixed income securities may face increased volatility and liquidity risks. All of these factors, collectively and/or individually, could cause a Fund to lose value.

 

If a Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, a Fund’s investments in foreign currency denominated securities may reduce the Fund’s returns.

 

The market values of securities may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.

 

Credit and Counterparty Risks  A Fund will be exposed to credit risk to parties with whom it trades and will also bear the risk of settlement default. A Fund minimizes concentrations of credit risk by undertaking transactions with a large number of counterparties on recognized and reputable exchanges. A Fund could lose money if the issuer or guarantor of a fixed income security or the counterparty to a financial derivatives contract, repurchase agreement or a loan of portfolio securities is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.

 

Similar to credit risk, a Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default. Financial assets, which potentially expose a Fund to counterparty risk, consist principally of cash due from counterparties and investments. PIMCO, as the Manager minimizes counterparty risks to the Funds by performing extensive reviews of each counterparty and obtaining approval from the PIMCO Counterparty Risk Committee prior to entering into transactions with a third-party. Furthermore, to the extent that unpaid amounts owed to a Fund exceed a predetermined threshold agreed to with the counterparty, such counterparty shall advance collateral to the Fund in the form of cash or cash

 

90		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

equivalents equal in value to the unpaid amount owed to the Fund. A Fund may invest such collateral in securities or other instruments and will typically pay interest to the counterparty on the collateral received. If the unpaid amount owed to a Fund subsequently decreases, the Fund would be required to return to the counterparty all or a portion of the collateral previously advanced to the Fund.

 

All transactions in listed securities are settled/paid for upon delivery using approved counterparties. The risk of default is considered minimal, as delivery of securities sold is only made once a Fund has received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

 

Master Netting Arrangements  The Funds are subject to various netting arrangements with select counterparties (“Master Agreements”). Master Agreements govern the terms of certain transactions, and reduce the counterparty risk associated with relevant transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Since different types of transactions have different mechanics and are sometimes traded out of different legal entities of a particular organization, each type of transaction may be covered by a different Master Agreement, resulting in the need for multiple agreements with a single counterparty. As the Master Agreements are specific to unique operations of different asset types, they allow the Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty.

 

Master Agreements can also help limit counterparty risk by specifying collateral posting arrangements at pre-arranged exposure levels. Under the Master Agreements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Agreement with a counterparty in a given account exceeds a specified threshold, which typically ranges from zero to $250,000 depending on the counterparty and the type of Master Agreement. United States Treasury Bills and U.S. dollar cash are generally the preferred forms of collateral, although other forms of AAA rated paper or sovereign securities may be used. Securities and cash pledged as collateral are reflected as assets in the Statements of Assets and Liabilities as either a component of Investments at value (securities) or Deposits due from Counterparties (cash). Cash collateral received is not typically held in a segregated account and as such is reflected as a liability in the Statements of Assets and Liabilities as Deposits due to Counterparties. The market value of any securities received as collateral is not reflected as a component of net asset value. The Fund’s overall exposure to counterparty risk can change substantially within a short period, as it is affected by each transaction subject to the relevant Master Agreement.

 

Master Repurchase Agreements and Global Master Repurchase Agreements (individually and collectively “Master Repo Agreements”) govern repurchase, reverse repurchase, and sale-buyback transactions between the Funds and select counterparties. Master Repo Agreements maintain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral. The market value of transactions under the Master Repo Agreement, collateral pledged or received, and the net exposure by counterparty as of period end are disclosed in the Notes to Schedule of Investments.

 

Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		91

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

To-Be-Announced securities, delayed-delivery or sale-buyback transactions by and between the Funds and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral. The market value of forward settling transactions, collateral pledged or received, and the net exposure by counterparty as of period end is disclosed in the Notes to Schedule of Investments.

 

Customer Account Agreements and related addendums govern cleared derivatives transactions such as futures, options on futures, and cleared OTC derivatives. Cleared derivative transactions require posting of initial margin as determined by each relevant clearing agency which is segregated at a broker account registered with the CFTC, or the applicable regulator. In the US, counterparty risk is significantly reduced as creditors of the futures broker do not have claim to Fund assets in the segregated account. Additionally, portability of exposure in the event of default further reduces risk to the Funds. Variation margin, or changes in market value, are exchanged daily, but may not be netted between futures and cleared OTC derivatives. The market value or accumulated unrealized appreciation or depreciation, initial margin posted, and any unsettled variation margin as of period end is disclosed in the Notes to Schedule of Investments.

 

International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”) govern OTC financial derivative transactions entered into by the Funds and select counterparties. ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements. In limited circumstances, the ISDA Master Agreement may contain additional provisions that add counterparty protection beyond coverage of existing daily exposure if the counterparty has a decline in credit quality below a predefined level. These amounts, if any, may be segregated with a third-party custodian. The market value of OTC financial derivative instruments, collateral received or pledged, and net exposure by counterparty as of period end are disclosed in the Notes to Schedule of Investments.

 

8. BASIS FOR CONSOLIDATION

 

PDILS I LLC (the “Subsidiary”), a Delaware limited liability company, was formed as a wholly owned subsidiary of PIMCO Dynamic Income Fund for purposes of serving as an investment vehicle for the Fund to effect certain investments for the Fund consistent with PIMCO Dynamic Income Fund’s investment objectives and policies in effect from time to time. PIMCO Dynamic Income Fund’s investment portfolio has been consolidated and includes the portfolio holdings of both PIMCO Dynamic Income Fund and the Subsidiary. Accordingly, the consolidated financial statements include the accounts of PIMCO Dynamic Income Fund and the Subsidiary. All inter-company transactions and balances have been eliminated. As of the date of this report, the only asset held by the Subsidiary was the AMPAM Parks Mechanical, Inc. senior loan, as reflected in PIMCO Dynamic Income Fund’s Consolidated Schedule of Investments. This structure was established so that the loan could be held

 

92		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

by a separate legal entity from the Fund. See the table below for details regarding the structure, incorporation and relationship as of period end of the Subsidiary to the PIMCO Dynamic Income Fund (amounts in thousands).

 

				PIMCO Dynamic Income Fund
				PDILS I LLC
Date of Formation					03/12/2013
Fund Net Assets				$	1,526,983
Subsidiary % of Fund Net Assets					0.6%
Subsidiary Financial Statement Information
Total assets				$	9,500
Total liabilities					202
Net assets					9,298
Total income					421
Net investment income (loss)					421
Net realized gain (loss)					0
Net change in unrealized appreciation (depreciation)					0
Increase (decrease) in net assets resulting from operations				$	421

 

9. FEES AND EXPENSES

 

Management Fee  Effective at the close of business on September 5, 2014, each Fund entered into an Investment Management Agreement with PIMCO (previously defined as the “Agreement”). Pursuant to the Agreement, subject to the supervision of the Board, PIMCO is responsible for providing to each Fund investment guidance and policy direction in connection with the management of the Fund, including oral and written research, analysis, advice, and statistical and economic data and information. In addition, pursuant to the Agreement and subject to the general supervision of the Board, PIMCO, at its expense, will provide or cause to be furnished most other supervisory and administrative services the Funds require, including but not limited to, expenses of most third-party service providers (e.g., audit, custodial, legal, transfer agency, printing) and other expenses, such as those associated with insurance, proxy solicitations and mailings for shareholder meetings, New York Stock Exchange listing and related fees, tax services, valuation services and other services the Funds require for their daily operations.

 

Pursuant to the Agreement, PIMCO receives an annual fee, payable monthly, at an annual rate of 1.150% of PIMCO Dynamic Income Fund’s average daily total managed assets, 1.105% of PIMCO Global StocksPLUS^® & Income Fund’s average daily total managed asset and 0.760% of PIMCO High Income Fund’s average daily net assets, inclusive of net assets attributable to any preferred shares that were outstanding. For PIMCO Global StocksPLUS^® & Income Fund and PIMCO Dynamic Income Fund, total managed assets refer to the total assets of each Fund (including any assets attributable to any preferred shares or other forms of leverage of the Fund that may be outstanding) minus accrued liabilities (other than liabilities representing leverage). For these purposes, “leverage” includes amounts of leverage attributable to such instruments as reverse repurchase agreements, other borrowings and/or other forms of leverage. Management fees paid to PIMCO subsequent to the close of business on September 5, 2014 to September 30, 2014 for PIMCO Dynamic Income Fund, PIMCO Global StocksPLUS^® & Income Fund and PIMCO High Income Fund were $2,166,372, $181,013 and $702,897, respectively.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		93

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

 

Prior to the close of business on September 5, 2014, AGIFM served as the investment manager to each Fund and received annual fees, payable monthly, at an annual rate of 1.150% of PIMCO Dynamic Income Fund’s average daily total managed assets, 1.000% of PIMCO Global StocksPLUS^® & Income Fund’s average daily total managed assets and 0.700% of PIMCO High Income Fund’s average daily net assets, inclusive of net assets attributable to any preferred shares that were outstanding. Prior to the close of business on September 5, 2014, AGIFM retained PIMCO as sub-adviser to manage the Funds’ investments. AGIFM, and not the Funds, paid a portion of the fees it received as investment manager to PIMCO in return for its services. Management fees paid to AGIFM from April 1, 2014 to the close of business on September 5, 2014 for PIMCO Dynamic Income Fund, PIMCO Global StocksPLUS^® & Income Fund and PIMCO High Income Fund were $13,562,251, $1,035,085 and $4,078,458, respectively.

 

Fund Expenses  Each Fund bears other expenses which may vary and affect the total level of expenses paid by shareholders, such as (i) salaries and other compensation or expenses, including travel expenses of any of the Fund’s executive officers and employees, if any, who are not officers, directors, shareholders, members, partners or employees of PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees, if any, levied against the Fund; (iii) brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund (including, without limitation, fees and expenses of outside legal counsel or third-party consultants retained in connection with reviewing, negotiating and structuring specialized loan and other investments made by the Fund, subject to specific or general authorization by the Fund’s Board); (iv) expenses of the Fund’s securities lending (if any), including any securities lending agent fees, as governed by a separate securities lending agreement; (v) costs, including interest expense, of borrowing money or engaging in other types of leverage financing, including, without limitation, through the use by the Fund of reverse repurchase agreements, tender option bonds, bank borrowings and credit facilities; (vi) costs, including dividend and/or interest expenses and other costs (including, without limitation, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares, commercial paper or other senior securities for the purpose of incurring leverage; (vii) fees and expenses of any underlying funds or other pooled investment vehicles in which the Fund invests; (viii) dividend and interest expenses on short positions taken by the Fund; (ix) fees and expenses, including travel expenses, and fees and expenses of legal counsel retained for their benefit, of Trustees who are not officers, employees, partners, shareholders or members of PIMCO or its subsidiaries or affiliates; (x) extraordinary expenses, including extraordinary legal expenses, as may arise, including expenses incurred in connection with litigation, proceedings, other claims, and the legal obligations of the Fund to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; (xi) organizational and offering expenses of the Fund, including with respect to share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering, and expenses associated with tender offers and other share repurchases and redemptions; and (xii) expenses of the Fund which are capitalized in accordance with generally accepted accounting principles.

 

Prior to the close of business on September 5, 2014, in addition to the management fee paid to AGIFM, as described above, each Fund directly had borne expenses for other administrative services and costs, including expenses associated with various third-party service providers, such as audit, custodial, legal, transfer agency, printing and other services the Funds require. Effective beginning at the close of business on September 5, 2014, PIMCO (and not the Funds) bears such expenses with respect to each Fund pursuant to the Agreement described above under “Management Fee.”

 

94		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

 

Each of the Independent Trustees of the Funds also serves as a trustee of a number of other closed-end funds for which PIMCO serves as investment manager (together with the Funds, the “PIMCO Closed-End Funds”), as well as PIMCO Managed Accounts Trust, an open-end investment company with multiple series for which PIMCO serves as investment manager (“PMAT” and, together with the PIMCO Closed-End Funds, the “PIMCO-Managed Funds”). In addition, each of the Independent Trustees also serves as a trustee of certain investment companies (together, the “Allianz-Managed Funds”), for which AGIFM serves as investment adviser.

 

Prior to the close of business on September 5, 2014, including during the period of this report, each of the PIMCO-Managed Funds and Allianz-Managed Funds held joint meetings of their Boards of Trustees whenever possible, and each Trustee, other than any Trustee who was a director, officer, partner or employee of PIMCO, AGIFM or any entity controlling, controlled by or under common control with PIMCO or AGIFM, received annual compensation of $250,000 for service on the Boards of all of the PIMCO-Managed Funds and Allianz-Managed Funds, payable quarterly. The Independent Chairman of the Boards received an additional $75,000 per year, payable quarterly. The Audit Oversight Committee Chairman received an additional $50,000 annually, payable quarterly. Trustees were also reimbursed for meeting-related expenses.

 

During periods prior to September 5, 2014, each Trustee’s compensation and other costs in connection with joint meetings were allocated among the PIMCO-Managed Funds and Allianz-Managed Funds, as applicable, on the basis of fixed percentages as between such groups of Funds. Trustee compensation and other costs were then further allocated pro rata among the individual funds within each grouping based on the complexity of issues relating to each such fund and relative time spent by the Trustees in addressing them, and on each such fund’s relative net assets.

 

Subsequent to September 5, 2014, in connection with the new investment management agreement between the PIMCO-Managed Funds and PIMCO and the termination of the investment management agreement between the PIMCO-Managed Funds and AGIFM, each of the PIMCO-Managed Funds began holding, and are expected to continue to hold, joint meetings of their Boards of Trustees whenever possible, but will generally no longer hold joint meetings with the Allianz-Managed Funds. Under the new Board structure, each Independent Trustee currently receives annual compensation of $225,000 for his or her service on the Boards of the PIMCO-Managed Funds, payable quarterly. The Independent Chairman of the Boards receives an additional $75,000 per year, payable quarterly. The Audit Oversight Committee Chairman receives an additional $50,000 annually, payable quarterly. Trustees are also reimbursed for meeting-related expenses.

 

Each Trustee’s compensation for his or her service as a Trustee on the Boards of the PIMCO-Managed Funds and other costs in connection with joint meetings of such Funds are allocated among the PIMCO-Managed Funds, as applicable, on the basis of fixed percentages as between PMAT and the PIMCO Closed-End Funds. Trustee compensation and other costs will then be further allocated pro rata among the individual funds within each grouping based on each such fund’s relative net assets.

 

10. RELATED PARTY TRANSACTIONS

 

The Manager is a related party. Fees payable to this party are disclosed in Note 9, and the accrued related party fee amounts are disclosed on the Statements of Assets and Liabilities.

 

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		95

---

Table of Contents

Notes to Financial Statements (Cont.)

 

 

 

Certain Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the Act. Further, as defined under the procedures, each transaction is effected at the current market price. During the period ended September 30, 2014, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act (amounts in thousands):

 

Fund Name				Purchases				Sales
PIMCO Global StocksPLUS® & Income Fund				$	1,026			$	285
PIMCO High Income Fund					20,795				326,623
PIMCO Dynamic Income Fund					25,825				1,287

 

11. GUARANTEES AND INDEMNIFICATIONS

 

Under each Fund’s organizational documents, each Trustee or officer of a Fund is indemnified, to the extent permitted by the Act, against certain liabilities that may arise out of performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts.

 

12. PURCHASES AND SALES OF SECURITIES

 

The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as “portfolio turnover.” Each Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover involves correspondingly greater expenses to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in realization of taxable capital gains, including short-term capital gains (which are generally taxed at ordinary income tax rates). The trading costs and tax effects associated with portfolio turnover may adversely affect a Fund’s performance. The portfolio turnover rates are reported in the Financial Highlights.

 

Purchases and sales of securities (excluding short-term investments) for the period ended September 30, 2014, were as follows (amounts in thousands):

 

				U.S. Government/Agency								All Other
Fund Name				Purchases				Sales				Purchases				Sales
PIMCO Global StocksPLUS® & Income Fund				$	133,684			$	133,805			$	17,435			$	23,644
PIMCO High Income Fund					297,241				19,039				177,533				358,100
PIMCO Dynamic Income Fund					0				4,833				149,718				79,222

 

96		PIMCO CLOSED-END FUNDS

---

Table of Contents

(Unaudited) September 30, 2014

 

 

13. AUCTION-RATE PREFERRED SHARES

 

Each series has a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends. Dividends are accumulated daily at an annual rate that is typically re-set every seven days. Distributions of net realized capital gains, if any, are paid annually.

 

For the six months ended September 30, 2014, the annualized dividend rates ranged from:

 

				Shares Issued and Outstanding				High				Low				As of September 30, 2014
PIMCO High Income Fund
Series M					2,336				0.160%				0.080%				0.112%
Series T					2,336				0.240%				0.080%				0.112%
Series W					2,336				0.144%				0.080%				0.112%
Series TH					2,336				0.128%				0.064%				0.096%
Series F					2,336				0.192%				0.080%				0.112%

 

The Fund is subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Fund from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation preference plus any accumulated, unpaid dividends.

 

Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote separately as a class to elect two Trustees and on certain matters adversely affecting the rights of the Preferred Shares.

 

Since mid-February 2008, holders of auction rate preferred shares (“ARPS”) issued by the Fund have been directly impacted by a lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Fund have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and ARPS holders have continued to receive dividends at the defined “maximum rate,” the 7-day “AA” Financial Composite Commercial Paper Rate multiplied by a minimum of 150%, depending on the credit rating of the ARPS (which is a function of short-term interest rates). As of September 30, 2014, the current multiplier for calculating the maximum rate is 160%. If the Fund’s ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Fund’s common shareholders could be adversely affected.

 

14. REGULATORY AND LITIGATION MATTERS

 

The Funds are not engaged in any material litigation or arbitration proceedings and are not aware of any material litigation or claim pending or threatened by or against them.

 

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		97

---

Table of Contents

Notes to Financial Statements (Cont.)

 

(Unaudited) September 30, 2014

 

 

15. FEDERAL INCOME TAX MATTERS

 

Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code (the “Code”) and distribute all of its taxable income and net realized gains, if applicable, to shareholders. Accordingly, no provision for Federal income taxes has been made.

 

In accordance with U.S. GAAP, the Manager has reviewed the Funds’ tax positions for all open tax years. As of September 30, 2014, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns.

 

Each Fund files U.S. tax returns. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for the fiscal years from 2011-2013, no examinations are in progress or anticipated at this time. No Fund is aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

As of September 30, 2014, the aggregate cost and the net unrealized appreciation/(depreciation) of investments for federal income tax purposes are as follows (amounts in thousands):

 

Fund Name				Federal Tax Cost				Aggregate Gross Unrealized Appreciation				Aggregate Gross Unrealized (Depreciation)				Net Unrealized Appreciation (1)
PIMCO Global StocksPLUS® & Income Fund				$	226,314			$	30,471			$	(5,792	)		$	24,679
PIMCO High Income Fund					1,607,539				106,130				(24,771	)			81,359
PIMCO Dynamic Income Fund					2,365,025				402,576				(43,817	)			358,759

 

(1)	Primary differences, if any, between book and tax net unrealized appreciation/(depreciation) are attributable to wash sale loss deferrals for federal income tax purposes.

 

16. SUBSEQUENT EVENTS

 

In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

On October 1, 2014, the following distributions were declared to common shareholders payable November 3, 2014 to shareholders of record on October 14, 2014.

 

PIMCO Global StocksPLUS® & Income Fund				$	0.18335 per common share
PIMCO High Income Fund				$	0.121875 per common share
PIMCO Dynamic Income Fund				$	0.191 per common share

 

On November 3, 2014, the following distributions were declared to common shareholders payable December 1, 2014 to shareholders of record on November 13, 2014.

 

PIMCO Global StocksPLUS® & Income Fund				$	0.18335 per common share
PIMCO High Income Fund				$	0.121875 per common share
PIMCO Dynamic Income Fund				$	0.191 per common share

 

There were no other subsequent events identified that require recognition or disclosure.

 

98		PIMCO CLOSED-END FUNDS

---

Table of Contents

Glossary: (abbreviations that may be used in the preceding statements)

 

(Unaudited)

 

Counterparty Abbreviations:
BCY		Barclays Capital, Inc.		FBF		Credit Suisse International		NAB		National Australia Bank Ltd.
BOA		Bank of America N.A.		FOB		Credit Suisse Securities (USA) LLC		RBC		Royal Bank of Canada
BOS		Banc of America Securities LLC		GLM		Goldman Sachs Bank USA		RDR		RBC Dain Rausher, Inc.
BPG		BNP Paribas Securities Corp.		GST		Goldman Sachs International		RYL		Royal Bank of Scotland Group PLC
BPS		BNP Paribas S.A.		HUS		HSBC Bank USA N.A.		SBI		Citigroup Global Markets Ltd.
BRC		Barclays Bank PLC		IND		Crédit Agricole Corporate and Investment Bank S.A.		SOG		Societe Generale
CBK		Citibank N.A.		JPM		JPMorgan Chase Bank N.A.		SSB		State Street Bank and Trust Co.
CFR		Credit Suisse Securities (Europe) Ltd.		JPS		JPMorgan Securities, Inc.		UAG		UBS AG Stamford
DBL		Deutsche Bank AG London		MSB		Morgan Stanley Bank, N.A		UBS		UBS Securities LLC
DEU		Deutsche Bank Securities, Inc.		MSC		Morgan Stanley & Co., Inc.		ULW		UBS Ltd.
DUB		Deutsche Bank AG		MYC		Morgan Stanley Capital Services, Inc.
Currency Abbreviations:
AUD		Australian Dollar		EUR		Euro		NOK		Norwegian Krone
BRL		Brazilian Real		GBP		British Pound		SEK		Swedish Krona
CAD		Canadian Dollar		HKD		Hong Kong Dollar		SGD		Singapore Dollar
CHF		Swiss Franc		JPY		Japanese Yen		USD (or $)		United States Dollar
DKK		Danish Krone		MXN		Mexican Peso
Exchange Abbreviations:
CME		Chicago Mercantile Exchange
Index Abbreviations:
ABX.HE		Asset-Backed Securities Index - Home Equity
Municipal Bond or Agency Abbreviations:
AGM		Assured Guaranty Municipal		FGIC		Financial Guaranty Insurance Co.
Other Abbreviations:
ABS		Asset-Backed Security		CDI		Brazil Interbank Deposit Rate		LIBOR		London Interbank Offered Rate
ALT		Alternate Loan Trust		CDO		Collateralized Debt Obligation		PIK		Payment-in-Kind
BABs		Build America Bonds		CLO		Collateralized Loan Obligation		TBD		To Be Determined

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		99

---

Table of Contents

Shareholder Meeting Results

 

(Unaudited)

 

Annual Shareholder Meeting Results—PIMCO Global StocksPLUS^® & Income Fund

 

The Fund held its annual meeting of shareholders on July 17, 2014. Shareholders voted as indicated below:

 

				Affirmative				Withheld Authority
Re-election of Alan Rappaport — Class III to serve until the annual meeting for the 2017-2018 fiscal year					9,048,836				344,253
Re-election of John C. Maney† — Class III to serve until the annual meeting for the 2017-2018 fiscal year					9,055,815				337,274

 

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Hans W. Kertess, Bradford K. Gallagher, James A. Jacobson and William B. Ogden, IV continued to serve as Trustees of the Fund.

 

†	Interested Trustee

 

Special Shareholder Meeting Results—PIMCO High Income Fund, PIMCO Dynamic Income Fund, PIMCO Global StocksPLUS^® & Income Fund

 

The Funds held a special meeting of shareholders on June 9, 2014 to vote on the approval of the new investment management agreement between the Funds and PIMCO, as discussed in the Notes to Financial Statements. The special meeting was convened as scheduled on June 9, 2014. However, because sufficient votes in favor of the proposal had not been received for any Fund at the time of the special meeting, the shareholders of each Fund present voted to adjourn the special meeting to July 10, 2014 to permit further solicitation of proxies. On July 10, 2014 the special meeting was reconvened, and common and preferred shareholders (if any) of each Fund voted as indicated below:

 

PIMCO High Income Fund

For

Against

Abstain

Approval of an Investment Management Agreement between PIMCO High Income Fund and Pacific Investment Management Company LLC

52,200,614

2,085,064

10,088,989

PIMCO Dynamic Income Fund

For

Against

Abstain

Approval of an Investment Management Agreement between PIMCO Dynamic Income Fund and Pacific Investment Management Company LLC

20,173,731

344,916

2,752,019

PIMCO Global StocksPLUS® & Income Fund

For

Against

Abstain

Approval of an Investment Management Agreement between PIMCO Global StocksPLUS® & Income Fund and Pacific Investment Management Company LLC

4,657,503

193,800

757,122

 

100		PIMCO CLOSED-END FUNDS

---

Table of Contents

Changes to Boards of Trustees/Changes to Portfolio Managers

 

(Unaudited)

 

Changes to Boards of Trustees

 

Effective at close of business on September 5, 2014, Craig A. Dawson became a Class II Trustee of each of PIMCO High Income Fund and PIMCO Dynamic Income Fund and a Class I Trustee of PIMCO Global StocksPLUS^® & Income Fund.

 

Changes to Portfolio Managers

 

Effective as of September 26, 2014, Alfred Murata and Mohit Mittal replaced William Gross as portfolio managers for PIMCO High Income Fund. There have not been any changes to the portfolio management of PIMCO Dynamic Income Fund or PIMCO Global StocksPLUS^® & Income Fund.

 

Mr. Murata is a managing director and portfolio manager in PIMCO’s Newport Beach office on the mortgage credit team. Morningstar named him Fixed-Income Fund Manager of the Year (U.S.) for 2013. Prior to joining PIMCO in 2001, he researched and implemented exotic equity and interest rate derivatives at Nikko Financial Technologies. He has 14 years of investment experience and holds a Ph.D. in engineering-economic systems and operations research from Stanford University. He also earned a J.D. from Stanford Law School and is a member of the State Bar of California.

 

Mr. Mittal is a managing director and portfolio manager in PIMCO’s Newport Beach office. He manages investment grade credit and unconstrained bond portfolios and is the current chair for the Americas Portfolio Committee. Previously, he was a specialist on PIMCO’s interest rates and derivatives desk. Mr. Mittal joined PIMCO in 2007. He has 7 years of investment experience and holds an MBA in finance from the Wharton School of the University of Pennsylvania and an undergraduate degree in computer science from Indian Institute of Technology (IIT) in Delhi, India.

 

The Morningstar Fixed-Income Fund Manager of the Year award is based on the strength of the manager, performance, strategy, and firm stewardship.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		101

---

Table of Contents

Investment Strategy Updates

 

(Unaudited)

 

PIMCO High Income Fund has adopted the following investment policy:

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security.

 

The following risks are associated with the policy described above:

 

The market price of common stocks and other equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than bonds and other debt securities.

 

102		PIMCO CLOSED-END FUNDS

---

Table of Contents

Matters Relating to the Trustees’ Consideration of the Investment

Management and Portfolio Management Agreements for PIMCO High

Income Fund and PIMCO Global StocksPLUS® & Income Fund

(Unaudited)

 

As discussed in Notes 1 and 8 in the Notes to Financial Statements, an Investment Management Agreement between each Fund and PIMCO (the “New Agreement”) became effective at the close of business on September 5, 2014, and at that time PIMCO replaced AGIFM as the investment manager of each Fund and ceased serving as each Fund’s sub-adviser. Prior thereto, each Fund had in place an Investment Management Agreement with AGIFM (the “Advisory Agreements”) and Portfolio Management Agreement between AGIFM and PIMCO (the “Sub-Advisory Agreements,” and, together with the Advisory Agreements, the “Previous Agreements”), which terminated at the close of business on September 5, 2014. However, the terms of the Previous Agreements with respect to PIMCO High Income Fund and PIMCO Global StocksPLUS^® & Income Fund (each, a “Renewal Fund” and, together, the “Renewal Funds”) would have terminated before the New Agreement took effect, and, therefore, the Trustees were asked to approve the continuance of the Previous Agreements with respect to the Renewal Funds for an additional term which would expire upon the effectiveness of the New Agreement or, in the event the New Agreement had not been approved by shareholders of a Renewal Fund, for an additional one-year period. The Investment Company Act of 1940, as amended, required that both the full Board of Trustees of each Renewal Fund (the “Board” or the “Trustees”) and a majority of the non-interested Trustees (the “Independent Trustees”), voting separately, approve each Previous Agreement. Accordingly, the Trustees met in person on June 23-24, 2014 (the “contract review meeting”) for the specific purpose of considering whether to approve the continuation of the Previous Agreements with respect to the Renewal Funds. The Independent Trustees were assisted in their evaluation of the Previous Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Fund management during the contract review meeting.

 

In connection with their deliberations regarding the continuation of the Previous Agreements, the Trustees, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. As described below, the Trustees considered the nature, quality, and extent of the various investment management, administrative and other services performed by AGIFM or PIMCO under the applicable Previous Agreement.

 

In connection with their contract review meeting, the Trustees relied upon materials provided by AGIFM and PIMCO for the contract review meeting or for prior meetings which included, among other items: (i) information provided by Lipper Inc. (“Lipper”), an independent third party, on the total return investment performance (based on net assets) of the Renewal Funds for various time periods, the investment performance of a group of funds with investment classifications/objectives comparable to those of the Renewal Funds identified by Lipper (the “Lipper performance universe”) and the performance of an applicable benchmark index, (ii) information provided by Lipper on the Renewal Funds’ management fees and other expenses and the management fees and other expenses of comparable funds identified by Lipper, (iii) information regarding the investment performance and fees for other funds managed by PIMCO with similar investment strategies to those of PIMCO High Income Fund (there are no such similar Funds with respect to PIMCO Global StocksPLUS^® & Income Fund), (iv) the estimated profitability to AGIFM from its relationship with the Renewal Funds for the one-year period ended December 31, 2013, (v) descriptions of various functions performed by AGIFM and PIMCO for the Renewal Funds, such as portfolio management, compliance monitoring and portfolio

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		103

---

Table of Contents

Matters Relating to the Trustees’ Consideration of the Investment

Management and Portfolio Management Agreements for PIMCO High

Income Fund and PIMCO Global StocksPLUS^® & Income Fund (Cont.)

 

 

trading practices, and (vi) information regarding the overall organization of AGIFM and PIMCO, including information regarding senior management, portfolio managers and other personnel who provided investment management, administrative and other services to the Renewal Funds.

 

The Trustees’ conclusions as to the continuation of the Previous Agreements were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors.

 

Fund-specific performance results for the Renewal Funds reviewed by the Trustees are discussed below. The comparative performance information was prepared and provided by Lipper and was not independently verified by the Trustees. The Trustees reviewed, among other information, comparative information showing performance of each Renewal Fund against its respective Lipper performance universe for the one-year, three-year, five-year and ten-year periods ended December 31, 2013 (to the extent such Fund had been in existence).

 

In addition, it was noted that the Trustees considered matters bearing on the Renewal Funds and their advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting.

 

As part of their review, the Trustees examined AGIFM’s and PIMCO’s abilities to provide high-quality investment management and other services to the Renewal Funds. Among other information, the Trustees considered the investment philosophy and research and decision-making processes of PIMCO; the experience of key advisory personnel of PIMCO responsible for portfolio management of the Renewal Funds; the ability of AGIFM and PIMCO to attract and retain capable personnel; and the capability of the senior management and staff of AGIFM and PIMCO. In addition, the Trustees reviewed the quality of AGIFM’s and PIMCO’s services with respect to regulatory compliance and compliance with the investment policies of the Renewal Funds; the nature and quality of certain administrative services AGIFM was responsible for providing to the Renewal Funds; and conditions that might have affected the AGIFM’s or PIMCO’s ability to provide high-quality services to the Renewal Funds in the future under the Previous Agreements, including each organization’s respective financial condition and operational stability. Based on the foregoing, the Trustees concluded that PIMCO’s investment process, research capabilities and philosophy were well suited to each Renewal Fund given its investment objective and policies, and that AGIFM and PIMCO would be able to continue to meet any reasonably foreseeable obligations under the Previous Agreements.

 

In assessing the reasonableness of each Renewal Fund’s fees under the Previous Agreements, the Trustees considered, among other information, the Renewal Fund’s management fee and its total expense ratio as a percentage of average net assets attributable to common shares and as a percentage of total managed assets (including assets attributable to common shares and leverage outstanding combined), and the management fee and total expense ratios of a peer expense group of funds based on information provided by Lipper. The Fund-specific fee and expense results discussed below were prepared and provided by Lipper and were not independently verified by the Trustees.

 

104		PIMCO CLOSED-END FUNDS

---

Table of Contents

 

(Unaudited)

 

 

The Trustees specifically took note of how each Renewal Fund compared to its Lipper peers as to performance, management fee expense and total net expenses. The Trustees noted that while the Renewal Funds were not charged a separate administration fee (recognizing that their management fees included a component for administrative services), it was not clear in all cases whether the peer funds in the Lipper category were separately charged such a fee by their investment managers, so that the total expense ratio (rather than any individual expense component) represented the most relevant comparison. It was noted that the total expense ratio comparisons reflect the effect of expense waivers/reimbursements (although none existed for the Renewal Funds).

 

PIMCO High Income Fund

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, the Trustees noted that the Fund had first quintile performance for the one-year, three-year and five-year periods and second quintile performance for the ten-year period ended December 31, 2013.

 

The Trustees noted that the expense group for the Fund provided by Lipper consisted of a total of ten closed-end funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $243.8 million to $1.956 billion, and that two of the funds in the group were larger in asset size than the Fund. The Trustees noted that the Fund’s management fee was above the median management fee of the other funds in its expense group provided by Lipper calculated both on common share assets and on common share and leveraged assets combined. With respect to the Fund’s total expense ratio (excluding interest expense) calculated on average net assets, the Trustees noted that the Fund’s estimated total expense ratio was above the median total expense ratio of the group of funds presented for comparison.

 

PIMCO Global StocksPLUS^® & Income Fund

 

With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, the Trustees noted that the Fund ranked first out of two funds for the one-year, three-year and five-year periods ended December 31, 2013.

 

The Trustees noted that the expense group for the Fund provided by Lipper consisted of a total of eight closed-end funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $115.5 million to $260.0 million, and that five of the funds in the group were larger in asset size than the Fund. The Trustees noted that the Fund’s management fee was above the median management fee of the other funds in its expense group provided by Lipper calculated both on common share assets and on common share and leveraged assets combined. With respect to the Fund’s total expense ratio (excluding interest expense) calculated on average net assets, the Trustees noted that the Fund’s estimated total expense ratio was below the median total expense ratio of the group of funds presented for comparison.

 

In addition to their review of Renewal Fund performance based on net asset value, the Trustees also considered the market value performance of each Renewal Fund’s common shares and related share price premium and/or discount information based on the materials provided by Lipper and management.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		105

---

Table of Contents

Matters Relating to the Trustees’ Consideration of the Investment

Management and Portfolio Management Agreements for PIMCO High

Income Fund and PIMCO Global StocksPLUS^® & Income Fund (Cont.)

 

 

 

The Trustees also considered the management fees charged by PIMCO to other funds with similar strategies to those of PIMCO High Income Fund, including open-end funds advised by PIMCO. The Trustees noted that the management fee paid by PIMCO High Income Fund is higher than the fees paid by the open-end fund offered for comparison, but were advised by PIMCO that there are additional portfolio management challenges in managing closed-end funds such as the Renewal Funds, such as those associated with the use of leverage and attempting to meet a regular dividend. The Trustees were advised that PIMCO does not manage any institutional or separate accounts which have an investment strategy or return profile bearing any reasonable similarity to PIMCO High Income Fund. With respect to PIMCO Global StocksPLUS^® & Income Fund, the Trustees were advised that PIMCO does not manage any funds or accounts which have an investment strategy or return profile bearing any reasonable similarity to that Fund.

 

The Trustees also took into account that PIMCO High Income Fund has preferred shares outstanding, which increased the amount of management fees payable by the Fund under the Previous Agreements (because the Fund’s fees were calculated based on the Fund’s net assets, including any assets attributable to preferred shares outstanding). They also took into account that the use of other forms of leverage by PIMCO Global StocksPLUS^® & Income Fund, such as through the use of reverse repurchase agreements, increased the amount of management fees payable by that Fund under the Previous Agreements (because the Fund’s fees were calculated based on total managed assets, including assets attributable to certain forms of leverage). The Trustees took into account that AGIFM and PIMCO had a financial incentive for the Renewal Funds to have preferred shares and/or other forms of leverage outstanding, which may have created a conflict of interest between AGIFM and PIMCO, on the one hand, and the Renewal Funds’ common shareholders, on the other. In this regard, the Trustees considered information provided by AGIFM and PIMCO and related presentations as to why the Renewal Funds’ use of leverage continues to be appropriate and in the best interests of the Renewal Funds under current market conditions. The Trustees also considered PIMCO’s representation that it will use leverage for the Renewal Funds solely as it determines to be in the best interests of the Renewal Funds from an investment perspective and without regard to the level of compensation AGIFM or PIMCO receive.

 

Based on a profitability analysis provided by AGIFM, the Trustees also considered the estimated profitability to AGIFM from its relationship with each Renewal Fund and determined that such profitability did not appear to be excessive.

 

The Trustees also took into account that, as closed-end investment companies, the Renewal Funds do not currently intend to raise additional assets, so the assets of the Renewal Funds will grow (if at all) principally through the investment performance of each Renewal Fund. Therefore, the Trustees did not consider potential economies of scale as a principal factor in assessing the fee rates payable under the Previous Agreements.

 

Additionally, the Trustees considered so-called “fall-out benefits” to AGIFM and PIMCO, such as reputational value derived from serving as investment manager and sub-adviser to the Renewal Funds and research, statistical and quotation services AGIFM and PIMCO may receive from broker-dealers executing the Renewal Funds’ portfolio transactions on an agency basis.

 

106		PIMCO CLOSED-END FUNDS

---

Table of Contents

 

(Unaudited)

 

 

After reviewing these and other factors described herein, the Trustees concluded, with respect to each Renewal Fund, within the context of their overall conclusions regarding the Previous Agreements and based on the information provided and related representations made by management, that they were satisfied with AGIFM’s and PIMCO’s responses and efforts relating to the investment performance of such Renewal Fund. The Trustees also concluded that the fees payable under each Previous Agreement represented reasonable compensation in light of the nature, extent and quality of services provided by AGIFM or PIMCO, as the case may be. Based on their evaluation of factors that they deemed to be material, including those factors described above, the Trustees, including the Independent Trustees, unanimously concluded that the continuation of the Previous Agreements was in the best interests of each Renewal Fund and its shareholders, and should be approved.

 

		SEMIANNUAL REPORT		SEPTEMBER 30, 2014		107

---

Table of Contents

General Information

 

 

Investment Manager

Pacific Investment Management Company LLC

650 Newport Center Drive

Newport Beach, CA 92660

 

Custodian

State Street Bank and Trust Company

801 Pennsylvania

Kansas City, MO 64105

 

Transfer Agent, Dividend Paying Agent and Registrar

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

 

Legal Counsel

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

1100 Walnut Street, Suite 1300

Kansas City, MO 64106

 

This report is submitted for the general information of the shareholders of PIMCO Dynamic Income Fund, PIMCO Global StocksPLUS^® & Income Fund and PIMCO High Income Fund.

---

Table of Contents

 

Sign up for e-delivery

 

To get future shareholder reports online and to eliminate mailings, go to: pimco.com/edelivery

 

pimco.com/investments

 

 

CEF4004SAR_093014

---

Table of Contents

Item 2.

Code of Ethics.

The information required by this Item 2 is only required in an annual report on this Form N-CSR.

 

Item 3.

Audit Committee Financial Expert.

The information required by this Item 3 is only required in an annual report on this Form N-CSR.

 

Item 4.

Principal Accountant Fees and Services.

The information required by this Item 4 is only required in an annual report on this Form N-CSR.

 

Item 5.

Audit Committee of Listed Registrants.

The information required by this Item 5 is only required in an annual report on this Form N-CSR.

 

Item 6.

Schedule of Investments.

The Schedule of Investments is included as part of the reports to shareholders under Item 1.

 

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

The information required by this Item 7 is only required in an annual report on this Form N-CSR.

 

Item 8.

Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

 

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

None

 

Item 10.

Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.

 

Item 11.

Controls and Procedures.

 

(a)

The principal executive officer and principal financial & accounting officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (“1940 Act”)) provide reasonable assurances that material information relating to the Registrant is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

 

(b)

There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 12.

Exhibits.

 

(a)(1)

Exhibit 99.CODE—Code of Ethics is not applicable for semiannual reports.

 

(a)(2)

Exhibit 99.CERT—Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

(b)

Exhibit 99.906CERT—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.