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UNITED STATES |
OMB APPROVAL |
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OMB Number: 3235-0578 | |
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FORM N-Q |
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QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
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Investment Company Act file number |
811-21601 |
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PIMCO Income Strategy Fund II | ||||||
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(Exact name of registrant as specified in charter) | ||||||
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1345 Avenue of the Americas, New York, NY |
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10105 | ||||
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(Address of principal executive offices) |
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(Zip code) | ||||
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Lawrence G. Altadonna 1345 Avenue of the Americas, New York, NY 10105 | ||||||
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(Name and address of agent for service) | ||||||
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Registrant’s telephone number, including area code: |
212-739-3371 |
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Date of fiscal year end: |
July 31, 2011 |
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Date of reporting period: |
October 31, 2010 |
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Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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 the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-2001. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Schedule of Investments
PIMCO Income Strategy Fund II Schedule of Investments
October 31, 2010 (unaudited)
|
Principal |
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|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
CORPORATE BONDS & NOTES—64.9% |
|
|
|
|
| ||
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Airlines—2.2% |
|
|
|
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|
|
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American Airlines Pass Through Trust, |
|
|
|
|
|
|
$8,282 |
|
9.73%, 9/29/14 |
|
Caa2/CCC+ |
|
$7,681,285 |
|
|
8,133 |
|
10.18%, 1/2/13 |
|
Caa1/CCC+ |
|
8,214,336 |
|
|
953 |
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United Air Lines Pass Through Trust, 10.40%, 5/1/18 |
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Baa2/BBB+ |
|
1,077,297 |
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|
|
|
|
|
|
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16,972,918 |
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|
|
|
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|
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Banking—9.5% |
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|
|
|
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|
5,500 |
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AgFirst Farm Credit Bank, 7.30%, 11/29/10 (a)(b)(d)(g)(k) |
|
|
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|
|
|
|
|
(acquisition cost-$4,709,000; purchased 2/26/10-4/15/10) |
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NR/A |
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4,663,950 |
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|
£13,600 |
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Barclays Bank PLC, 14.00%, 6/15/19 (g) |
|
Baa2/A- |
|
28,049,352 |
|
|
$6,700 |
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BBVA Bancomer S.A., 7.25%, 4/22/20 (a)(d) |
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A3/NR |
|
7,467,418 |
|
|
2,000 |
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Den Norske Bank ASA, 7.729%, 6/29/11 (a)(d)(g) |
|
Baa3/BBB+ |
|
2,027,776 |
|
|
1,400 |
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HBOS PLC, 6.75%, 5/21/18 (a)(d) |
|
Baa3/BBB- |
|
1,437,582 |
|
|
€20,000 |
|
Rabobank Nederland NV, 6.875%, 3/19/20 |
|
NR/NR |
|
27,885,489 |
|
|
$1,675 |
|
Regions Financial Corp., 7.375%, 12/10/37 |
|
Ba1/BB+ |
|
1,515,788 |
|
|
|
|
|
|
|
|
73,047,355 |
|
|
|
|
|
|
|
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Energy—1.7% |
|
|
|
|
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|
10,496 |
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AES Red Oak LLC, 8.54%, 11/30/19 |
|
B1/BB- |
|
10,823,652 |
|
|
2,300 |
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Dynegy Roseton/Danskammer Pass Through Trust, 7.67%, 11/8/16 Ser. B |
|
Caa2/B- |
|
2,139,000 |
|
|
|
|
|
|
|
|
12,962,652 |
|
|
|
|
|
|
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Financial Services—33.3% |
|
|
|
|
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|
|
|
Ally Financial, Inc., |
|
|
|
|
|
|
250 |
|
2.157%, 11/15/11, FRN |
|
B3/B |
|
245,312 |
|
|
33 |
|
2.207%, 11/15/11, FRN |
|
B3/B |
|
32,381 |
|
|
38 |
|
2.257%, 11/15/11, FRN |
|
B3/B |
|
37,287 |
|
|
100 |
|
2.307%, 11/15/11, FRN |
|
B3/B |
|
98,125 |
|
|
155 |
|
2.342%, 12/15/11, FRN |
|
B3/B |
|
152,094 |
|
|
30 |
|
2.892%, 3/15/12, FRN |
|
B3/B |
|
28,837 |
|
|
416 |
|
5.25%, 1/15/14 |
|
B3/B |
|
398,325 |
|
|
315 |
|
5.35%, 1/15/14 |
|
B3/B |
|
302,509 |
|
|
130 |
|
5.70%, 6/15/13 |
|
B3/B |
|
126,774 |
|
|
561 |
|
5.75%, 1/15/14 |
|
B3/B |
|
545,114 |
|
|
565 |
|
5.90%, 1/15/19 |
|
B3/B |
|
489,402 |
|
|
3 |
|
5.90%, 2/15/19 |
|
B3/B |
|
2,597 |
|
|
585 |
|
6.00%, 12/15/13 |
|
B3/B |
|
572,270 |
|
|
1,437 |
|
6.00%, 2/15/19 |
|
B3/B |
|
1,253,529 |
|
|
119 |
|
6.00%, 3/15/19 |
|
B3/B |
|
103,688 |
|
|
9 |
|
6.00%, 9/15/19 |
|
B3/B |
|
7,872 |
|
|
486 |
|
6.10%, 9/15/19 |
|
B3/B |
|
429,637 |
|
|
159 |
|
6.125%, 10/15/19 |
|
B3/B |
|
140,374 |
|
|
394 |
|
6.15%, 8/15/19 |
|
B3/B |
|
348,116 |
|
|
454 |
|
6.15%, 10/15/19 |
|
B3/B |
|
401,532 |
|
|
675 |
|
6.20%, 4/15/19 |
|
B3/B |
|
597,249 |
|
|
500 |
|
6.25%, 12/15/18 |
|
B3/B |
|
443,237 |
|
|
47 |
|
6.25%, 7/15/19 |
|
B3/B |
|
41,794 |
|
|
7 |
|
6.35%, 4/15/16 |
|
B3/B |
|
6,619 |
|
|
792 |
|
6.35%, 10/15/16 |
|
B3/B |
|
744,578 |
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|
303 |
|
6.35%, 4/15/19 |
|
B3/B |
|
270,838 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
Financial Services (continued) |
|
|
|
|
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|
$1,142 |
|
6.35%, 7/15/19 |
|
B3/B |
|
$1,022,550 |
|
|
463 |
|
6.375%, 1/15/14 |
|
B3/B |
|
456,779 |
|
|
256 |
|
6.50%, 7/15/12 |
|
B3/B |
|
253,113 |
|
|
249 |
|
6.50%, 9/15/16 |
|
B3/B |
|
235,650 |
|
|
608 |
|
6.50%, 10/15/16 |
|
B3/B |
|
575,892 |
|
|
5 |
|
6.50%, 6/15/18 |
|
B3/B |
|
4,564 |
|
|
449 |
|
6.50%, 11/15/18 |
|
B3/B |
|
403,934 |
|
|
190 |
|
6.50%, 12/15/18 |
|
B3/B |
|
171,109 |
|
|
15 |
|
6.50%, 5/15/19 |
|
B3/B |
|
13,554 |
|
|
45 |
|
6.60%, 6/15/12 |
|
B3/B |
|
44,602 |
|
|
208 |
|
6.60%, 8/15/16 |
|
B3/B |
|
198,571 |
|
|
864 |
|
6.60%, 5/15/18 |
|
B3/B |
|
800,227 |
|
|
100 |
|
6.60%, 6/15/19 |
|
B3/B |
|
91,025 |
|
|
132 |
|
6.65%, 10/15/18 |
|
B3/B |
|
120,229 |
|
|
190 |
|
6.70%, 5/15/14 |
|
B3/B |
|
187,443 |
|
|
256 |
|
6.70%, 6/15/18 |
|
B3/B |
|
238,035 |
|
|
335 |
|
6.70%, 12/15/19 |
|
B3/B |
|
302,551 |
|
|
160 |
|
6.75%, 9/15/12 |
|
B3/B |
|
158,139 |
|
|
844 |
|
6.75%, 10/15/12 |
|
B3/B |
|
837,286 |
|
|
555 |
|
6.75%, 6/15/14 |
|
B3/B |
|
546,585 |
|
|
215 |
|
6.75%, 8/15/16 |
|
B3/B |
|
205,943 |
|
|
1,136 |
|
6.75%, 11/15/16 |
|
B3/B |
|
1,089,309 |
|
|
210 |
|
6.75%, 6/15/17 |
|
B3/B |
|
202,718 |
|
|
831 |
|
6.75%, 7/15/18 |
|
B3/B |
|
776,306 |
|
|
3 |
|
6.75%, 9/15/18 |
|
B3/B |
|
2,762 |
|
|
612 |
|
6.75%, 10/15/18 |
|
B3/B |
|
560,503 |
|
|
107 |
|
6.75%, 11/15/18 |
|
B3/B |
|
97,869 |
|
|
92 |
|
6.80%, 9/15/16 |
|
B3/B |
|
88,352 |
|
|
12 |
|
6.80%, 9/15/18 |
|
B3/B |
|
11,082 |
|
|
207 |
|
6.85%, 4/15/16 |
|
B3/B |
|
200,273 |
|
|
7 |
|
6.875%, 7/15/18 |
|
B3/B |
|
6,547 |
|
|
319 |
|
6.90%, 7/15/18 |
|
B3/B |
|
298,968 |
|
|
326 |
|
6.90%, 8/15/18 |
|
B3/B |
|
304,231 |
|
|
135 |
|
6.95%, 6/15/17 |
|
B3/B |
|
131,743 |
|
|
201 |
|
7.00%, 8/15/16 |
|
B3/B |
|
194,844 |
|
|
1,729 |
|
7.00%, 11/15/16 |
|
B3/B |
|
1,680,013 |
|
|
580 |
|
7.00%, 12/15/16 |
|
B3/B |
|
563,290 |
|
|
1,729 |
|
7.00%, 1/15/17 |
|
B3/B |
|
1,678,292 |
|
|
601 |
|
7.00%, 2/15/17 |
|
B3/B |
|
583,079 |
|
|
1,087 |
|
7.00%, 6/15/17 |
|
B3/B |
|
1,063,572 |
|
|
1,073 |
|
7.00%, 7/15/17 |
|
B3/B |
|
1,049,388 |
|
|
43 |
|
7.00%, 2/15/18 |
|
B3/B |
|
41,276 |
|
|
506 |
|
7.00%, 3/15/18 |
|
B3/B |
|
483,962 |
|
|
15 |
|
7.00%, 5/15/18 |
|
B3/B |
|
14,178 |
|
|
400 |
|
7.00%, 9/15/18 |
|
B3/B |
|
373,746 |
|
|
134 |
|
7.00%, 6/15/22 |
|
B3/B |
|
121,401 |
|
|
2,035 |
|
7.00%, 11/15/24 |
|
B3/B |
|
1,831,976 |
|
|
325 |
|
7.05%, 3/15/18 |
|
B3/B |
|
311,742 |
|
|
4 |
|
7.05%, 4/15/18 |
|
B3/B |
|
3,821 |
|
|
2,636 |
|
7.10%, 9/15/12 |
|
B3/B |
|
2,636,808 |
|
|
28 |
|
7.15%, 11/15/12 |
|
B3/B |
|
27,916 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
Financial Services (continued) |
|
|
|
|
| ||
|
$6 |
|
7.15%, 9/15/18 |
|
B3/B |
|
$5,661 |
|
|
477 |
|
7.20%, 10/15/17 |
|
B3/B |
|
468,705 |
|
|
339 |
|
7.25%, 8/15/12 |
|
B3/B |
|
338,546 |
|
|
1,998 |
|
7.25%, 12/15/12 |
|
B3/B |
|
1,994,114 |
|
|
55 |
|
7.25%, 6/15/16 |
|
B3/B |
|
54,326 |
|
|
653 |
|
7.25%, 9/15/17 |
|
B3/B |
|
640,169 |
|
|
329 |
|
7.25%, 1/15/18 |
|
B3/B |
|
321,509 |
|
|
255 |
|
7.25%, 4/15/18 |
|
B3/B |
|
246,052 |
|
|
39 |
|
7.30%, 12/15/17 |
|
B3/B |
|
38,314 |
|
|
503 |
|
7.30%, 1/15/18 |
|
B3/B |
|
492,888 |
|
|
165 |
|
7.35%, 1/15/17 |
|
B3/B |
|
162,961 |
|
|
58 |
|
7.35%, 4/15/18 |
|
B3/B |
|
56,376 |
|
|
25 |
|
7.375%, 11/15/16 |
|
B3/B |
|
24,841 |
|
|
55 |
|
7.375%, 4/15/18 |
|
B3/B |
|
53,536 |
|
|
166 |
|
7.40%, 12/15/17 |
|
B3/B |
|
161,479 |
|
|
1,828 |
|
7.50%, 11/15/16 |
|
B3/B |
|
1,819,975 |
|
|
15 |
|
7.50%, 8/15/17 |
|
B3/B |
|
14,689 |
|
|
559 |
|
7.50%, 11/15/17 |
|
B3/B |
|
556,639 |
|
|
290 |
|
7.50%, 12/15/17 |
|
B3/B |
|
283,669 |
|
|
40 |
|
8.00%, 3/15/17 |
|
B3/B |
|
40,214 |
|
|
3 |
|
8.125%, 11/15/17 |
|
B3/B |
|
3,007 |
|
|
25 |
|
8.20%, 3/15/17 |
|
B3/B |
|
25,154 |
|
|
24 |
|
8.40%, 8/15/15 |
|
B3/B |
|
24,096 |
|
|
224 |
|
9.00%, 7/15/20 |
|
B3/B |
|
225,225 |
|
|
8,450 |
|
American General Finance Corp., 0.542%, 12/15/11, FRN |
|
B3/B |
|
7,837,214 |
|
|
£2,100 |
|
BAC Capital Trust VII, 5.25%, 8/10/35 |
|
Baa3/BB |
|
2,495,716 |
|
|
$10,100 |
|
Bank of America Corp., 8.125%, 5/15/18 (g) |
|
Ba3/BB |
|
10,205,242 |
|
|
2,900 |
|
Capital One Capital VI, 8.875%, 5/15/40 |
|
Baa3/BB |
|
3,081,250 |
|
|
|
|
CIT Group, Inc., |
|
|
|
|
|
|
2,912 |
|
7.00%, 5/1/13 |
|
B3/B+ |
|
2,962,861 |
|
|
1,068 |
|
7.00%, 5/1/14 |
|
B3/B+ |
|
1,078,536 |
|
|
1,068 |
|
7.00%, 5/1/15 |
|
B3/B+ |
|
1,071,860 |
|
|
2,128 |
|
7.00%, 5/1/16 |
|
B3/B+ |
|
2,131,216 |
|
|
2,492 |
|
7.00%, 5/1/17 |
|
B3/B+ |
|
2,491,671 |
|
|
200 |
|
Citigroup Capital XXI, 8.30%, 12/21/77, (converts to FRN on 12/21/37) |
|
Ba1/BB- |
|
210,250 |
|
|
|
|
Ford Motor Credit Co. LLC, |
|
|
|
|
|
|
6,200 |
|
5.625%, 9/15/15 |
|
Ba2/B+ |
|
6,584,239 |
|
|
4,300 |
|
7.80%, 6/1/12 |
|
Ba2/B+ |
|
4,636,342 |
|
|
15,400 |
|
8.125%, 1/15/20 |
|
Ba2/B+ |
|
18,864,014 |
|
|
11,000 |
|
ILFC E-Capital Trust II, 6.25%, 12/21/65, |
|
|
|
|
|
|
|
|
(converts to FRN on 12/21/15) (a)(d) |
|
B3/BB |
|
8,855,000 |
|
|
|
|
International Lease Finance Corp., |
|
|
|
|
|
|
4,950 |
|
5.625%, 9/20/13 |
|
B1/BB+ |
|
5,005,688 |
|
|
5,950 |
|
6.625%, 11/15/13 |
|
B1/BB+ |
|
6,158,250 |
|
|
2,000 |
|
8.625%, 9/15/15 (a)(d) |
|
B1/BB+ |
|
2,255,000 |
|
|
|
|
LBG Capital No.1 PLC, |
|
|
|
|
|
|
€500 |
|
6.439%, 5/23/20 |
|
Ba3/BB- |
|
621,980 |
|
|
€500 |
|
7.375%, 3/12/20 |
|
Ba3/BB- |
|
663,024 |
|
|
£300 |
|
7.588%, 5/12/20 |
|
Ba3/BB- |
|
455,658 |
|
|
£10,200 |
|
7.867%, 12/17/19 |
|
Ba3/BB- |
|
15,655,452 |
|
|
£1,000 |
|
7.869%, 8/25/20 |
|
Ba3/BB- |
|
1,526,854 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
Financial Services (continued) |
|
|
|
|
| ||
|
$4,500 |
|
7.875%, 11/1/20 |
|
Ba3/BB- |
|
$4,477,500 |
|
|
£4,700 |
|
11.04%, 3/19/20 |
|
Ba3/BB- |
|
8,340,941 |
|
|
|
|
LBG Capital No.2 PLC, |
|
|
|
|
|
|
€8,900 |
|
8.875%, 2/7/20 |
|
Ba2/BB |
|
12,679,367 |
|
|
£300 |
|
12.75%, 8/10/20 |
|
Ba2/BB |
|
551,586 |
|
|
€1,100 |
|
15.00%, 12/21/19 |
|
Ba2/BB |
|
2,117,513 |
|
|
$2,500 |
|
Lehman Brothers Holdings, Inc., 7.50%, 5/11/38 (e) |
|
WR/NR |
|
3,375 |
|
|
4,800 |
|
Lyondell Chemical Co., 8.00%, 11/1/17 (a)(d) |
|
Ba3/BB |
|
5,268,000 |
|
|
€1,600 |
|
MUFG Capital Finance 2 Ltd., 4.85%, 7/25/16 (g) |
|
Ba1/BBB+ |
|
2,079,291 |
|
|
$22,600 |
|
National City Preferred Capital Trust I, 12.00%, 12/10/12 (g)(j) |
|
Baa3/BBB |
|
25,291,547 |
|
|
3,500 |
|
NB Capital Trust II, 7.83%, 12/15/26 |
|
Baa3/BB |
|
3,521,875 |
|
|
5,965 |
|
NSG Holdings LLC, 7.75%, 12/15/25 (a)(d) |
|
Ba2/BB |
|
5,450,519 |
|
|
|
|
SLM Corp., |
|
|
|
|
|
|
10,000 |
|
3.385%, 9/15/15, FRN |
|
Ba1/BBB- |
|
8,235,600 |
|
|
1,900 |
|
5.00%, 10/1/13 |
|
Ba1/BBB- |
|
1,909,513 |
|
|
3,400 |
|
5.375%, 5/15/14 |
|
Ba1/BBB- |
|
3,412,927 |
|
|
10,100 |
|
8.00%, 3/25/20 |
|
Ba1/BBB- |
|
10,226,806 |
|
|
6,750 |
|
Wells Fargo & Co., 7.98%, 3/15/18 (g) |
|
Ba1/A- |
|
7,121,250 |
|
|
9,900 |
|
Wells Fargo Capital XIII, 7.70%, 3/26/13 (g) |
|
Ba1/A- |
|
10,320,750 |
|
|
|
|
|
|
|
|
255,025,660 |
|
|
|
|
|
|
|
| ||
|
Healthcare & Hospitals—1.0% |
|
|
|
|
| ||
|
6,700 |
|
HCA, Inc., 9.625%, 11/15/16, PIK |
|
B2/BB- |
|
7,303,000 |
|
|
|
|
|
|
|
|
|
|
|
Insurance—17.2% |
|
|
|
|
| ||
|
3,000 |
|
American General Institutional Capital A, 7.57%, 12/1/45 (a)(d) |
|
Ba2/B |
|
3,045,000 |
|
|
10,000 |
|
American General Institutional Capital B, 8.125%, 3/15/46 (a)(d) |
|
Ba2/B |
|
10,250,000 |
|
|
|
|
American International Group, Inc., |
|
|
|
|
|
|
€17,600 |
|
4.875%, 3/15/67, (converts to FRN on 3/15/17) |
|
Ba2/BBB |
|
19,753,265 |
|
|
$13,600 |
|
5.45%, 5/18/17 |
|
A3/A- |
|
14,195,000 |
|
|
£5,000 |
|
5.75%, 3/15/67, (converts to FRN on 3/15/17) |
|
Ba2/BBB |
|
6,694,976 |
|
|
€10,000 |
|
8.00%, 5/22/68, (converts to FRN on 5/22/18) (a)(d) |
|
Ba2/BBB |
|
14,072,742 |
|
|
$14,550 |
|
8.175%, 5/15/68, (converts to FRN on 5/15/38) |
|
Ba2/BBB |
|
15,604,875 |
|
|
1,300 |
|
8.25%, 8/15/18 |
|
A3/A- |
|
1,558,375 |
|
|
£14,100 |
|
8.625%, 5/22/68, (converts to FRN on 5/22/18) |
|
Ba2/BBB |
|
23,332,091 |
|
|
$1,700 |
|
AXA S.A., 6.463%, 12/14/18 (a)(d)(g) |
|
Baa1/BBB |
|
1,606,500 |
|
|
4,700 |
|
Hartford Financial Services Group, Inc., |
|
|
|
|
|
|
|
|
8.125%, 6/15/68, (converts to FRN on 6/15/18) |
|
Ba1/BB+ |
|
5,029,000 |
|
|
15,000 |
|
Metlife Capital Trust IV, 7.875%, 12/15/67 (converts to FRN on 12/15/37) (a)(d) |
|
Baa2/BBB |
|
16,275,000 |
|
|
|
|
|
|
|
|
131,416,824 |
|
|
|
|
|
|
|
|
|
|
|
Telecommunications—0.0% |
|
|
|
|
| ||
|
200 |
|
Sprint Capital Corp., 8.75%, 3/15/32 |
|
Ba3/BB- |
|
220,500 |
|
|
|
|
Total Corporate Bonds & Notes (cost—$426,836,293) |
|
|
|
496,948,909 |
|
|
|
|
|
|
|
|
|
|
|
MORTGAGE-BACKED SECURITIES—18.0% |
|
|
|
|
| ||
|
405 |
|
Banc of America Alternative Loan Trust, 6.00%, 1/25/36, CMO |
|
Caa2/NR |
|
303,881 |
|
|
|
|
Banc of America Funding Corp., CMO, |
|
|
|
|
|
|
5,736 |
|
3.182%, 2/20/36, FRN |
|
NR/AAA |
|
5,418,515 |
|
|
131 |
|
5.924%, 1/20/47, VRN |
|
NR/CCC |
|
97,360 |
|
|
14,600 |
|
6.00%, 3/25/37 |
|
Caa1/CCC |
|
11,758,971 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
|
|
Chase Mortgage Finance Corp., CMO, |
|
|
|
|
|
|
$158 |
|
5.054%, 12/25/35, FRN |
|
NR/CCC |
|
$151,246 |
|
|
3,853 |
|
5.409%, 3/25/37, FRN |
|
Caa2/NR |
|
3,214,562 |
|
|
3,942 |
|
5.50%, 5/25/36 |
|
B3/NR |
|
3,488,275 |
|
|
|
|
Citicorp Mortgage Securities, Inc., CMO, |
|
|
|
|
|
|
1,187 |
|
5.50%, 4/25/37 |
|
Caa1/NR |
|
1,080,000 |
|
|
9,276 |
|
6.00%, 9/25/37 |
|
B3/NR |
|
8,843,583 |
|
|
|
|
Countrywide Alternative Loan Trust, CMO, |
|
|
|
|
|
|
2,519 |
|
5.50%, 1/25/36 |
|
Caa3/CCC |
|
1,909,970 |
|
|
2,590 |
|
5.75%, 12/25/36 |
|
NR/CC |
|
1,787,257 |
|
|
8,990 |
|
6.00%, 5/25/36 |
|
Caa3/NR |
|
6,383,346 |
|
|
1,608 |
|
6.00%, 4/25/37 |
|
NR/CC |
|
1,008,701 |
|
|
7,163 |
|
6.089%, 4/25/36, VRN |
|
Ca/CCC |
|
5,049,033 |
|
|
2,872 |
|
6.25%, 11/25/36 |
|
Caa3/NR |
|
2,228,400 |
|
|
1,390 |
|
6.50%, 8/25/36 |
|
Ca/CC |
|
1,001,329 |
|
|
|
|
Countrywide Home Loan Mortgage Pass Through Trust, CMO, |
|
|
|
|
|
|
3,510 |
|
5.75%, 3/25/37 |
|
NR/CCC |
|
3,057,612 |
|
|
2,652 |
|
6.00%, 5/25/36 |
|
NR/CCC |
|
2,360,425 |
|
|
1,800 |
|
6.00%, 2/25/37 |
|
NR/CCC |
|
1,444,628 |
|
|
7,700 |
|
6.00%, 3/25/37 |
|
NR/CCC |
|
6,722,527 |
|
|
3,612 |
|
6.25%, 9/25/36 |
|
B3/NR |
|
3,074,529 |
|
|
809 |
|
First Horizon Alternative Mortgage Securities, |
|
|
|
|
|
|
|
|
2.545%, 9/25/34, CMO, FRN |
|
Aa3/AAA |
|
738,060 |
|
|
3,753 |
|
First Horizon Asset Securities, Inc., 2.807%, 11/25/35, CMO, FRN |
|
NR/B |
|
2,942,659 |
|
|
5,126 |
|
JPMorgan Alternative Loan Trust, 5.767%, 5/25/36, CMO, VRN |
|
NR/CCC |
|
3,262,546 |
|
|
7,500 |
|
JPMorgan Chase Commercial Mortgage Securities Corp., |
|
|
|
|
|
|
|
|
5.653%, 3/18/51, CMO, VRN (a)(d) |
|
A1/NR |
|
7,125,645 |
|
|
|
|
JPMorgan Mortgage Trust, CMO, |
|
|
|
|
|
|
2,233 |
|
5.342%, 10/25/35, VRN |
|
B2/NR |
|
2,140,778 |
|
|
974 |
|
6.00%, 8/25/37 |
|
NR/CCC |
|
868,603 |
|
|
391 |
|
6.50%, 9/25/35 |
|
NR/B+ |
|
373,211 |
|
|
2,382 |
|
MASTR Asset Securitization Trust, 6.50%, 11/25/37, CMO |
|
NR/CCC |
|
2,222,158 |
|
|
2,100 |
|
Morgan Stanley Reremic Trust, 5.808%, 8/12/45, CMO, VRN (a)(d) |
|
A3/NR |
|
2,060,543 |
|
|
88 |
|
Nomura Asset Acceptance Corp., 4.976%, 5/25/35, CMO |
|
Caa2/CCC |
|
62,166 |
|
|
|
|
Residential Asset Securitization Trust, CMO, |
|
|
|
|
|
|
3,102 |
|
5.75%, 2/25/36 |
|
Caa3/CC |
|
2,299,282 |
|
|
1,234 |
|
6.00%, 9/25/36 |
|
Caa3/D |
|
737,826 |
|
|
3,376 |
|
6.00%, 7/25/37 |
|
NR/CCC |
|
2,816,228 |
|
|
|
|
Residential Funding Mortgage Securities I, CMO, |
|
|
|
|
|
|
6,963 |
|
5.387%, 9/25/35, VRN |
|
Caa2/CCC |
|
5,870,006 |
|
|
14,689 |
|
6.00%, 6/25/37 |
|
NR/CC |
|
12,842,588 |
|
|
4,077 |
|
6.25%, 8/25/36 |
|
Caa1/CCC |
|
3,728,672 |
|
|
1,437 |
|
Sequoia Mortgage Trust, 0.974%, 5/20/34, CMO, FRN |
|
A1/AAA |
|
1,196,855 |
|
|
1,251 |
|
Suntrust Adjustable Rate Mortgage Loan Trust, |
|
|
|
|
|
|
|
|
5.830%, 2/25/37, CMO, FRN |
|
NR/CCC |
|
994,110 |
|
|
|
|
WaMu Mortgage Pass Through Certificates, CMO, |
|
|
|
|
|
|
2,000 |
|
5.768%, 2/25/37, FRN |
|
NR/CCC |
|
1,644,034 |
|
|
750 |
|
5.868%, 9/25/36, VRN |
|
NR/CCC |
|
614,988 |
|
|
|
|
Wells Fargo Mortgage-Backed Securities Trust, CMO, |
|
|
|
|
|
|
722 |
|
5.220%, 4/25/36, VRN |
|
NR/BB+ |
|
651,226 |
|
|
1,292 |
|
5.404%, 7/25/36, FRN |
|
NR/CCC |
|
1,035,344 |
|
|
12,018 |
|
5.428%, 7/25/36, FRN |
|
NR/CCC |
|
9,776,816 |
|
|
2,000 |
|
5.75%, 3/25/37 |
|
Caa2/NR |
|
1,729,243 |
|
|
|
|
Total Mortgage-Backed Securities (cost—$126,923,620) |
|
|
|
138,117,737 |
|
|
|
|
|
|
Credit Rating |
|
|
|
|
Shares |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
PREFERRED STOCK—4.7% |
|
|
|
|
| ||
|
Automotive Products—0.0% |
|
|
|
|
| ||
|
20,275 |
|
Dura Automotive Systems, Inc., 20.00% (b)(f)(i) |
|
NR/NR |
|
$10,137 |
|
|
|
|
|
|
|
|
|
|
|
Banking—1.6% |
|
|
|
|
| ||
|
221,900 |
|
CoBank Acb, 11.00%, 7/1/13, Ser. C (a)(b)(d)(g)(k)(l) |
|
|
|
|
|
|
|
|
(acquisition cost-$12,197,000; purchased 2/26/10-8/16/10) |
|
NR/A |
|
12,190,632 |
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services—0.8% |
|
|
|
|
| ||
|
240,000 |
|
Citigroup Capital XIII, 7.875%, 10/30/15 (l) |
|
Ba1/BB- |
|
6,360,000 |
|
|
|
|
|
|
|
|
|
|
|
Insurance—1.8% |
|
|
|
|
| ||
|
21,655 |
|
ABN AMRO North America Capital Funding Trust I, 1.342% (a)(d)(m) |
|
Ba3/BB |
|
13,683,253 |
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trust—0.5% |
|
|
|
|
| ||
|
3,000 |
|
Sovereign Real Estate Investment Trust, 12.00%, 5/16/20 (a)(d)(g) |
|
Baa3/BBB+ |
|
3,495,000 |
|
|
|
|
Total Preferred Stock (cost—$32,702,012) |
|
|
|
35,739,022 |
|
|
|
|
|
|
|
| ||
|
CONVERTIBLE PREFERRED STOCK—3.2% |
|
|
|
|
| ||
|
Financial Services—0.4% |
|
|
|
|
| ||
|
3,000 |
|
Wells Fargo & Co., 7.50%, 3/15/13, Ser. L (g) |
|
Ba1/A- |
|
3,000,000 |
|
|
|
|
|
|
|
| ||
|
Utilities—2.8% |
|
|
|
|
| ||
|
374,000 |
|
PPL Corp., 9.50%, 7/1/13 |
|
NR/NR |
|
21,104,820 |
|
|
|
|
Total Convertible Preferred Stock (cost—$22,205,180) |
|
|
|
24,104,820 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
(000s) |
|
|
|
|
|
|
|
|
SENIOR LOANS (a)(c)—3.1% |
|
|
|
|
| ||
|
Consumer Products—0.3% |
|
|
|
|
| ||
|
$3,000 |
|
National Mentor, Inc., 2.54%, 6/29/12 (b)(k) |
|
|
|
|
|
|
|
|
(acquisition cost-$2,994,751; purchased 9/26/06) |
|
|
|
2,550,000 |
|
|
|
|
|
|
|
|
|
|
|
Financial Services—0.9% |
|
|
|
|
| ||
|
3,000 |
|
American General Finance Corp., 7.25%, 4/21/15 |
|
|
|
3,033,048 |
|
|
1,409 |
|
CIT Group, Inc., 6.25%, 8/11/15 |
|
|
|
1,435,438 |
|
|
2,115 |
|
International Lease Finance Corp., 7.00%, 3/17/16, Term B2 |
|
|
|
2,168,269 |
|
|
|
|
|
|
|
|
6,636,755 |
|
|
Hotels/Gaming—0.3% |
|
|
|
|
| ||
|
2,073 |
|
MotorCity Casino, 8.50%, 7/23/12, Term B |
|
|
|
2,070,328 |
|
|
|
|
|
|
|
|
|
|
|
Multi-Media—1.1% |
|
|
|
|
| ||
|
|
|
Seven Media Group, Term T1, |
|
|
|
|
|
|
AUD7,150 |
|
7.00%, 2/7/13 |
|
|
|
6,647,811 |
|
|
AUD1,706 |
|
7.432%, 12/28/12 |
|
|
|
1,586,317 |
|
|
|
|
|
|
|
|
8,234,128 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
Credit Rating |
|
|
|
|
(000s) |
|
|
|
(Moody’s/S&P) |
|
Value* |
|
|
Printing/Publishing—0.0% |
|
|
|
|
| ||
|
$108 |
|
American Media, Inc., 10.00%, 1/30/13 (b)(k) |
|
|
|
|
|
|
|
|
(acquisition cost-$108,361; purchased 4/30/10-10/27/10) |
|
|
|
$107,142 |
|
|
|
|
|
|
|
|
|
|
|
Utilities—0.5% |
|
|
|
|
| ||
|
|
|
Texas Competitive Electric Holdings Co. LLC, |
|
|
|
|
|
|
4,950 |
|
3.756%, 10/10/14 |
|
|
|
3,871,342 |
|
|
13 |
|
3.789%, 10/10/14 |
|
|
|
9,801 |
|
|
|
|
|
|
|
|
3,881,143 |
|
|
|
|
Total Senior Loans (cost—$23,069,721) |
|
|
|
23,479,496 |
|
|
|
|
|
|
|
| ||
|
MUNICIPAL BONDS—1.5% |
|
|
|
|
| ||
|
Texas—1.5% |
|
|
|
|
| ||
|
11,500 |
|
North Texas Tollway Auth. Rev., 8.91%, 2/1/30 (cost—$11,454,621) |
|
Baa3/NR |
|
11,648,580 |
|
|
|
|
|
|
|
|
|
|
|
ASSET-BACKED SECURITIES—1.0% |
|
|
|
|
| ||
|
3,210 |
|
Asset-Backed Funding Certificates, 0.476%, 5/25/37, FRN (a)(d) |
|
B3/B- |
|
2,886,322 |
|
|
2,461 |
|
GSAA Trust, 6.295%, 6/25/36 |
|
Caa1/CCC |
|
1,670,706 |
|
|
2,262 |
|
MASTR Asset-Backed Securities Trust, 5.233%, 11/25/35 |
|
A1/BBB |
|
2,099,012 |
|
|
1,600 |
|
Morgan Stanley Mortgage Loan Trust, 6.25%, 7/25/47, VRN |
|
Caa2/CCC |
|
1,149,702 |
|
|
|
|
Total Asset-Backed Securities (cost—$6,928,165) |
|
|
|
7,805,742 |
|
|
Shares |
|
|
|
|
|
|
|
|
COMMON STOCK—0.0% |
|
|
|
|
| ||
|
Automotive Products—0.0% |
|
|
|
|
| ||
|
81,383 |
|
Dura Automotive Systems, Inc. (b)(f)(i) (cost—$1,317,433) |
|
|
|
813 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
(000s) |
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS—3.6% |
|
|
|
|
| ||
|
Corporate Notes—2.2% |
|
|
|
|
| ||
|
Financial Services—2.2% |
|
|
|
|
| ||
|
|
|
Ally Financial, Inc., |
|
|
|
|
|
|
$50 |
|
1.557%, 2/15/11, FRN |
|
B3/B |
|
49,812 |
|
|
125 |
|
1.642%, 3/15/11, FRN |
|
B3/B |
|
124,531 |
|
|
40 |
|
1.807%, 5/15/11, FRN |
|
B3/B |
|
39,250 |
|
|
35 |
|
1.877%, 4/15/11, FRN |
|
B3/B |
|
34,396 |
|
|
438 |
|
1.977%, 7/15/11, FRN |
|
B3/B |
|
429,788 |
|
|
55 |
|
2.027%, 7/15/11, FRN |
|
B3/B |
|
53,969 |
|
|
30 |
|
2.027%, 10/17/11, FRN |
|
B3/B |
|
29,438 |
|
|
35 |
|
2.042%, 6/15/11, FRN |
|
B3/B |
|
34,344 |
|
|
25 |
|
2.042%, 9/15/11, FRN |
|
B3/B |
|
24,281 |
|
|
81 |
|
2.107%, 8/15/11, FRN |
|
B3/B |
|
79,481 |
|
|
108 |
|
2.127%, 7/15/11, FRN |
|
B3/B |
|
105,975 |
|
|
360 |
|
2.157%, 8/15/11, FRN |
|
B3/B |
|
349,650 |
|
|
76 |
|
6.625%, 10/15/11 |
|
B3/B |
|
76,199 |
|
|
1,625 |
|
American General Finance Corp., 0.649%, 8/17/11, FRN |
|
B3/B |
|
1,539,419 |
|
|
14,350 |
|
SLM Corp., 0.518%, 10/25/11, FRN |
|
Ba1/BBB- |
|
13,938,887 |
|
|
|
|
Total Corporate Notes (cost—$15,631,351) |
|
|
|
16,909,420 |
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
(000s) |
|
|
|
|
|
Value* |
|
|
U.S. Treasury Bills (h)(n)—0.3% |
|
|
|
|
| ||
|
$2,209 |
|
0.137%-0.145%, 11/4/10-11/18/10 (cost—$2,208,905) |
|
|
|
$2,208,905 |
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements—1.1% |
|
|
|
|
| ||
|
8,100 |
|
Barclays Capital Inc., dated 10/29/10, 0.23%, due 11/1/10, proceeds $8,100,155; collateralized by U.S. Treasury Notes, 1.875%, due 6/30/15, valued at $8,295,221 including accrued interest |
|
|
|
8,100,000 |
|
|
492 |
|
State Street Bank & Trust Co., dated 10/29/10, 0.01%, due 11/1/10, proceeds $492,000; collateralized by U.S. Treasury Notes, 2.125%, due 5/31/15, valued at $505,824 including accrued interest |
|
|
|
492,000 |
|
|
|
|
Total Repurchase Agreements (cost—$8,592,000) |
|
|
|
8,592,000 |
|
|
|
|
Total Short-Term Investments (cost—$26,432,256) |
|
|
|
27,710,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments (cost—$677,869,301)—100.0% |
|
|
|
$765,555,444 |
|
Notes to Schedule of Investments:
|
* |
|
Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services. |
|
|
|
|
|
|
|
Portfolio securities and other financial instruments for which market quotations are not readily available or for which a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees, including certain fixed income securities which may be valued with reference to securities whose prices are more readily available. The Fund’s investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days. Investments initially valued in currencies other than U.S. dollar are converted to the U.S. dollar using exchange rates obtained from pricing services. As a result, the net asset value (“NAV”) of the 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 New York Stock Exchange (“NYSE”) is closed. |
|
|
|
|
|
|
|
The prices used by the Fund to value securities may differ from the value that would be realized if the securities were sold and these differences could be material. The Fund’s NAV is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the NYSE on each day the NYSE is open for business. |
|
|
|
|
|
(a) |
|
Private Placement—Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $147,595,378, representing 19.3% of total investments. |
|
|
|
|
|
(b) |
|
Illiquid. |
|
|
|
|
|
(c) |
|
These securities generally pay interest at rates which are periodically pre-determined by reference to a base lending rate plus a premium. These base lending rates are generally either the lending rate offered by one or more major European banks, such as the “LIBOR” or the prime rate offered by one or more major United States banks, or the certificate of deposit rate. These securities are generally considered to be restricted as the Fund is ordinarily contractually obligated to receive approval from the Agent bank and/or borrower prior to disposition. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional payments by the borrower. Such prepayments cannot be predicted with certainty. The interest rate disclosed reflects the rate in effect on October 31, 2010. |
|
|
|
|
|
(d) |
|
144A—Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid. |
|
|
|
|
|
(e) |
|
In default. |
|
|
|
|
|
(f) |
|
Fair-Valued—Securities with an aggregate value of $10,950, representing less than 0.05% of total investments |
|
|
|
|
|
(g) |
|
Perpetual maturity. Maturity date shown is the first call date. On Corporate Bonds & Notes, the interest rate is fixed until the first call date and variable thereafter. |
|
|
|
|
|
(h) |
|
All or partial amount segregated for the benefit of the counterparty as collateral for derivatives. |
|
|
|
|
|
(i) |
|
Non-income producing. |
|
|
|
|
|
(j) |
|
All or partial amount segregated for the benefit of the counterparty as collateral for reverse repurchase agreements. |
|
|
|
|
|
(k) |
|
Restricted. The aggregate acquisition cost of such securities is $20,009,112. The aggregate market value is $19,511,724, representing 2.5% of total investments. |
|
|
|
|
|
(l) |
|
Dividend rate is fixed until the first call date and variable thereafter. |
|
|
|
|
|
(m) |
|
Floating Rate. The rate disclosed reflects the rate in effect on October 31, 2010. |
|
|
|
|
|
(n) |
|
Rates shown are the effective yields at purchase date. |
Glossary:
|
AUD |
— |
Australian Dollar |
|
£ |
— |
British Pound |
|
CMO |
— |
Collateralized Mortgage Obligation |
|
€ |
— |
Euro |
|
FRN |
— |
Floating Rate Note. The interest rate disclosed reflects the rate in effect on October 31, 2010. |
|
LIBOR |
— |
London Inter-Bank Offered Rate |
|
NR |
— |
Not Rated |
|
PIK |
— |
Payment-in-Kind |
|
VRN |
— |
Variable Rate Note. Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on October 31, 2010. |
|
WR |
— |
Withdrawn Rating |
Other Investments:
(A) Credit default swap agreements:
Sell protection swap agreements outstanding at October 31, 2010 (1):
|
|
|
Notional Amount |
|
|
|
|
|
|
|
|
|
Upfront |
|
|
|
|
Swap Counterparty/ |
|
Payable on Default |
|
Credit |
|
Termination |
|
Payments |
|
Market |
|
Premiums |
|
Unrealized |
|
|
Referenced Debt Issuer |
|
(000s) (3) |
|
Spread (2) |
|
Date |
|
Received |
|
Value (4) |
|
Paid(Received) |
|
Appreciation |
|
|
Bank of America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian Government International Bond |
|
$30,000 |
|
1.00 |
% |
12/20/15 |
|
1.00 |
% |
$41,989 |
|
$(229,906 |
) |
$271,895 |
|
|
Citigroup: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLM |
|
6,550 |
|
3.71 |
% |
12/20/13 |
|
5.00 |
% |
283,931 |
|
(807,000 |
) |
1,090,931 |
|
|
Deutsche Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLM |
|
5,400 |
|
3.71 |
% |
12/20/13 |
|
5.00 |
% |
234,080 |
|
(756,000 |
) |
990,080 |
|
|
United Kingdom Gilt |
|
33,600 |
|
0.54 |
% |
12/20/15 |
|
1.00 |
% |
812,253 |
|
503,864 |
|
308,389 |
|
|
HSBC Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico Government International Bond |
|
4,000 |
|
1.07 |
% |
12/20/15 |
|
1.00 |
% |
(8,225 |
) |
(51,182 |
) |
42,957 |
|
|
Merrill Lynch: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLM |
|
1,450 |
|
3.71 |
% |
12/20/13 |
|
5.00 |
% |
62,855 |
|
(203,000 |
) |
265,855 |
|
|
|
|
|
|
|
|
|
|
|
|
$1,426,883 |
|
$(1,543,224 |
) |
$2,970,107 |
|
(1) If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
(2) Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
(3) The maximum potential amount the Fund could be required to make available 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 quoted market prices and resulting values for credit default swap agreements serve as an indicator of the status at October 31, 2010 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 been 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 entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
(B) Forward foreign currency contracts outstanding at October 31, 2010:
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
U.S.$ Value on |
|
U.S.$ Value |
|
Appreciation |
|
|
|
|
Counterparty |
|
Origination Date |
|
October 31, 2010 |
|
(Depreciation) |
|
|
Purchased: |
|
|
|
|
|
|
|
|
|
|
372,200 Brazilian Real settling 9/2/11 |
|
Bank of America |
|
$200,000 |
|
$205,622 |
|
$5,622 |
|
|
408,946 Brazilian Real settling 12/2/10 |
|
Citigroup |
|
244,365 |
|
239,428 |
|
(4,937 |
) |
|
11,051,824 Brazilian Real settling 12/2/10 |
|
HSBC Bank |
|
6,177,356 |
|
6,470,592 |
|
293,236 |
|
|
185,950 Brazilian Real settling 9/2/11 |
|
Morgan Stanley |
|
100,000 |
|
102,728 |
|
2,728 |
|
|
1,232,230 Brazilian Real settling 12/2/10 |
|
Royal Bank of Scotland |
|
700,000 |
|
721,443 |
|
21,443 |
|
|
295,000 Canadian Dollar settling 11/18/10 |
|
Deutsche Bank |
|
288,156 |
|
289,788 |
|
1,632 |
|
|
842,000 Canadian Dollar settling 11/18/10 |
|
Royal Bank of Canada |
|
805,041 |
|
827,124 |
|
22,083 |
|
|
139,000 Canadian Dollar settling 11/18/10 |
|
Royal Bank of Scotland |
|
135,778 |
|
136,544 |
|
766 |
|
|
14,519,138 Chinese Yuan Renminbi settling 1/10/11 |
|
JPMorgan Chase |
|
2,163,000 |
|
2,194,582 |
|
31,582 |
|
|
902,000,000 Indonesian Rupiah settling 11/24/10 |
|
Barclays Bank |
|
100,000 |
|
100,575 |
|
575 |
|
|
901,500,000 Indonesian Rupiah settling 11/24/10 |
|
HSBC Bank |
|
100,000 |
|
100,519 |
|
519 |
|
|
4,658,000 Indian Rupee settling 11/12/10 |
|
Barclays Bank |
|
100,000 |
|
104,619 |
|
4,619 |
|
|
2,658,000 Indian Rupee settling 3/9/11 |
|
Barclays Bank |
|
58,818 |
|
58,468 |
|
(350 |
) |
|
2,000,000 Indian Rupee settling 3/9/11 |
|
Royal Bank of Scotland |
|
44,445 |
|
43,995 |
|
(450 |
) |
|
67,392,000 Japanese Yen settling 11/1/10 |
|
Citigroup |
|
812,313 |
|
836,648 |
|
24,335 |
|
|
3,828,190 Mexican Peso settling 2/22/11 |
|
Barclays Bank |
|
296,674 |
|
307,773 |
|
11,099 |
|
|
1,303,220 Mexican Peso settling 2/22/11 |
|
Morgan Stanley |
|
100,000 |
|
104,774 |
|
4,774 |
|
|
728,400 South African Rand settling 1/28/11 |
|
Barclays Bank |
|
100,000 |
|
103,337 |
|
3,337 |
|
|
1,520,300 South African Rand settling 9/13/11 |
|
Barclays Bank |
|
200,000 |
|
208,778 |
|
8,778 |
|
|
5,814,254 South African Rand settling 1/28/11 |
|
HSBC Bank |
|
829,600 |
|
824,856 |
|
(4,744 |
) |
|
759,900 South African Rand settling 9/13/11 |
|
Morgan Stanley |
|
100,000 |
|
104,355 |
|
4,355 |
|
|
1,430,410,000 South Korean Won settling 11/12/10 |
|
HSBC Bank |
|
1,252,000 |
|
1,270,628 |
|
18,628 |
|
|
Sold: |
|
|
|
|
|
|
|
|
|
|
8,411,000 Australian Dollar settling 12/3/10 |
|
Deutsche Bank |
|
8,247,389 |
|
8,214,104 |
|
33,285 |
|
|
408,946 Brazilian Real settling 3/2/11 |
|
Citigroup |
|
239,794 |
|
235,195 |
|
4,599 |
|
|
12,693,000 Brazilian Real settling 12/2/10 |
|
Royal Bank of Scotland |
|
7,500,000 |
|
7,431,462 |
|
68,538 |
|
|
1,080,000 British Pound settling 12/20/10 |
|
Bank of America |
|
1,695,254 |
|
1,726,061 |
|
(30,807 |
) |
|
25,789,000 British Pound settling 12/20/10 |
|
BNP Paribas |
|
40,901,354 |
|
41,216,103 |
|
(314,749 |
) |
|
29,081,000 British Pound settling 12/20/10 |
|
Citigroup |
|
46,107,635 |
|
46,477,393 |
|
(369,758 |
) |
|
2,000 British Pound settling 12/20/10 |
|
Morgan Stanley |
|
3,171 |
|
3,196 |
|
(25 |
) |
|
1,275,000 Canadian Dollar settling 11/18/10 |
|
Morgan Stanley |
|
1,250,760 |
|
1,252,474 |
|
(1,714 |
) |
|
14,273,000 Chinese Yuan Renminbi settling 9/14/11 |
|
JPMorgan Chase |
|
2,200,925 |
|
2,204,222 |
|
(3,297 |
) |
|
25,590,000 Euro settling 11/23/10 |
|
Barclays Bank |
|
35,429,234 |
|
35,558,415 |
|
(129,181 |
) |
|
4,474,000 Euro settling 11/23/10 |
|
BNP Paribas |
|
6,203,013 |
|
6,216,817 |
|
(13,804 |
) |
|
4,892,000 Euro settling 1/25/11 |
|
Citigroup |
|
6,801,617 |
|
6,791,618 |
|
9,999 |
|
|
24,438,000 Euro settling 11/23/10 |
|
Deutsche Bank |
|
31,296,036 |
|
33,957,662 |
|
(2,661,626 |
) |
|
1,803,500,000 Indonesian Rupiah settling 11/24/10 |
|
JPMorgan Chase |
|
201,508 |
|
201,093 |
|
415 |
|
|
2,658,000 Indian Rupee settling 11/12/10 |
|
Barclays Bank |
|
59,623 |
|
59,699 |
|
(76 |
) |
|
2,000,000 Indian Rupee settling 11/12/10 |
|
Royal Bank of Scotland |
|
45,086 |
|
44,921 |
|
165 |
|
|
66,692,000 Japanese Yen settling 11/1/10 |
|
Morgan Stanley |
|
792,443 |
|
827,958 |
|
(35,515 |
) |
|
5,001,410 Mexican Peso settling 2/22/11 |
|
Bank of America |
|
395,900 |
|
402,096 |
|
(6,196 |
) |
|
8,597,016 South African Rand settling 1/28/11 |
|
Deutsche Bank |
|
1,226,656 |
|
1,219,641 |
|
7,015 |
|
|
71,170,000 South Korean Won settling 11/12/10 |
|
Barclays Bank |
|
58,757 |
|
63,220 |
|
(4,463 |
) |
|
424,020,000 South Korean Won settling 11/12/10 |
|
Citigroup |
|
344,529 |
|
376,656 |
|
(32,127 |
) |
|
903,240,000 South Korean Won settling 11/12/10 |
|
JPMorgan Chase |
|
793,952 |
|
802,345 |
|
(8,393 |
) |
|
31,980,000 South Korean Won settling 11/12/10 |
|
Royal Bank of Scotland |
|
26,264 |
|
28,408 |
|
(2,144 |
) |
|
|
|
|
|
|
|
|
|
$(3,040,229 |
) |
At October 31, 2010, the Fund held $1,380,000 in cash as collateral for derivatives. Cash collateral held may be invested in accordance with the Fund’s investment strategy.
(C) Open reverse repurchase agreements at October 31, 2010:
|
Counterparty |
|
Rate |
|
Trade Date |
|
Maturity Date |
|
Principal & Interest |
|
Principal |
|
|
Credit Suisse First Boston |
|
0.50 |
% |
10/20/10 |
|
11/18/2010 |
|
$16,091,682 |
|
$16,089,000 |
|
|
Greenwich Capital Markets |
|
0.50 |
% |
10/20/10 |
|
11/18/2010 |
|
8,817,469 |
|
8,816,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$24,905,000 |
|
The weighted average daily balance of reverse repurchase agreements outstanding during the three months ended October 31, 2010 was $36,733,685 at a weighted average interest rate of 0.50%. The total market value of underlying collateral (refer to the Schedule of Investments for positions segregated for the benefit of the counterparty as collateral for reverse repurchase agreements) for open reverse repurchase agreements at October 31, 2010 was $25,291,547.
(D) At October 31, 2010, the Fund had the following unfunded loan commitment which could be extended at the option of the borrower:
|
|
|
Principal |
|
|
Borrower |
|
Amount |
|
|
Eastman Kodak |
|
$1,025,000 |
|
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:
· Level 1 – quoted prices in active markets for identical investments that the Fund has the ability to access
· Level 2 – valuations based on other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges
· Level 3 – valuations based on significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in the aggregate, that is significant to fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation technique used.
The valuation techniques used by the Fund to measure fair value during the three months ended October 31, 2010 maximized the use of observable inputs and minimized the use of unobservable inputs. When fair-valuing securities, the Fund utilized multi-dimensional relational pricing models techniques.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following are certain inputs and techniques that the Fund generally uses to evaluate how to classify each major category of assets and liabilities in accordance with Generally Accepted Accounting Principles.
Equity Securities (Common and Preferred Stock) – Equity securities traded in inactive markets and certain foreign equity securities are valued using inputs which include broker-dealer quotes, recently executed transactions adjusted for changes in the benchmark index, or evaluated price quotes received from independent pricing services that take into account the integrity of the market sector and issuer, the individual characteristics of the security, and information received from broker-dealers and other market sources pertaining to the issuer or security. To the extent that these inputs are observable, the values of equity securities are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
U.S. Treasury Obligations – U.S. Treasuries are valued by independent pricing services based on pricing models that evaluate the mean between the most recently quoted bid and ask price. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable U.S. Treasury issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Treasury obligations are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Government Sponsored Enterprise and Mortgage-Backed Securities – Government sponsored enterprise and mortgage-backed securities are valued by independent pricing services using pricing models based on inputs that include issuer type, coupon, cash flows, mortgage prepayment projection tables and Adjustable Rate Mortgage evaluations that incorporate index data, periodic and life caps, the next coupon reset date, and the convertibility of the bond. To the extent that these inputs are observable, the values of Government sponsored enterprise and mortgage-backed securities are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Municipal Bonds – Municipal bonds are valued by independent pricing servies based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable, the values of municipal bonds are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Corporate Bonds & Notes – Corporate bonds and notes are generally comprised of two main categories: investment grade bonds and high yield bonds. Investment grade bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, live trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent pricing services based primarily on broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of corporate bonds and notes are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Asset-Backed Securities and Collateralized Mortgage Obligations – Asset-backed securities and collateralized mortgage obligations are valued by independent pricing services using pricing models based on a security’s average life volatility. The models also take into account tranche characteristics such as coupon average life, collateral types, ratings, the issuer and tranche type, underlying collateral and performance of the collateral, and discount margin for certain floating rate issues. To the extent that these inputs are observable, the values of asset-backed securities and collateralized mortgage obligations are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Forward Foreign Currency Contracts – Forward foreign currency contracts are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, actual trading information and foreign currency exchange rates gathered from leading market makers and foreign currency exchange trading centers throughout the world. To the extent that these inputs are observable, the values of forward foreign currency contracts are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Credit Default Swaps — Credit default swaps are valued by independent pricing services using pricing models that take into account, among other factors, information received from market makers and broker-dealers, default probabilities from index specific credit spread curves, recovery rates, and cash flows. To the extent that these inputs are observable, the values of credit default swaps are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
Senior Loans – Senior Loans are valued by independent pricing services based on the average of quoted prices received from multiple dealers or valued relative to other benchmark securities when broker-dealer quotes are unavailable. To the extent that these inputs are observable, the values of Senior Loans are categorized as Level 2. To the extent that these inputs are unobservable the values are categorized as Level 3.
The Fund’s policy is to recognize transfers between levels at the end of the reporting period.
A summary of the inputs used at October 31, 2010 in valuing the Fund’s assets and liabilities is listed below:
|
|
|
|
|
Level 2 - |
|
Level 3 - |
|
|
|
|
|
|
|
|
Other Significant |
|
Significant |
|
|
|
|
|
|
Level 1 - |
|
Observable |
|
Unobservable |
|
Value at |
|
|
|
|
Quoted Prices |
|
Inputs |
|
Inputs |
|
10/31/10 |
|
|
Investments in Securities - Assets |
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
Airlines |
|
— |
|
$15,895,621 |
|
$1,077,297 |
|
$16,972,918 |
|
|
Energy |
|
— |
|
10,823,652 |
|
2,139,000 |
|
12,962,652 |
|
|
All Other |
|
— |
|
467,013,339 |
|
— |
|
467,013,339 |
|
|
Mortgaged-Backed Securities |
|
— |
|
138,117,737 |
|
— |
|
138,117,737 |
|
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
Automotive Products |
|
— |
|
— |
|
10,137 |
|
10,137 |
|
|
Diversified Financial Services |
|
$6,360,000 |
|
— |
|
— |
|
6,360,000 |
|
|
All Other |
|
— |
|
29,368,885 |
|
— |
|
29,368,885 |
|
|
Convertible Preferred Stock |
|
24,104,820 |
|
— |
|
— |
|
24,104,820 |
|
|
Senior Loans |
|
— |
|
23,479,496 |
|
— |
|
23,479,496 |
|
|
Municipal Bonds |
|
— |
|
11,648,580 |
|
— |
|
11,648,580 |
|
|
Asset-Backed Securities |
|
— |
|
7,805,742 |
|
— |
|
7,805,742 |
|
|
Common Stock |
|
— |
|
— |
|
813 |
|
813 |
|
|
Short-Term Investments |
|
— |
|
27,710,325 |
|
— |
|
27,710,325 |
|
|
Total Investments in Securities - Assets |
|
$30,464,820 |
|
$731,863,377 |
|
$3,227,247 |
|
$765,555,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments* - Assets |
|
|
|
|
|
|
|
|
|
|
Credit Contracts |
|
— |
|
$2,970,107 |
|
— |
|
$2,970,107 |
|
|
Foreign Exchange Contracts |
|
— |
|
584,127 |
|
— |
|
584,127 |
|
|
Total Other Financial Instruments* - Assets |
|
— |
|
$3,554,234 |
|
— |
|
$3,554,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments* - Liabilities |
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
— |
|
$(3,624,356 |
) |
— |
|
$(3,624,356 |
) |
|
Total Investments |
|
$30,464,820 |
|
$731,793,255 |
|
$3,227,247 |
|
$765,485,322 |
|
*Other Financial Instruments are derivative instruments not reflected in the Schedule of Investments, such as swap agreements and forward foreign currency contracts, which are valued at the unrealized appreciation (depreciation) of the instrument.
There were no significant transfers between Levels 1 and 2 during the three months ended October 31, 2010.
A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the three months ended October 31, 2010, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Net Change |
|
|
|
|
|
|
|
|
|
|
Beginning |
|
Net |
|
Accrued |
|
|
|
in Unrealized |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Purchases(Sales) |
|
Discounts |
|
Net Realized |
|
Appreciation/ |
|
Transfers into |
|
Transfers out |
|
Ending Balance |
|
|
|
|
7/31/10 |
|
and Settlements |
|
(Premiums) |
|
Gain(Loss) |
|
Depreciation |
|
Level 3** |
|
of Level 3 |
|
10/31/10 |
|
|
Investments in Securities - Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines |
|
$1,039,163 |
|
— |
|
$(2,010 |
) |
— |
|
$40,145 |
|
— |
|
— |
|
$1,077,297 |
|
|
Energy |
|
— |
|
— |
|
— |
|
— |
|
— |
|
$2,139,000 |
|
— |
|
2,139,000 |
|
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Products |
|
10,137 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
10,137 |
|
|
Common Stock |
|
813 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
813 |
|
|
Total Investments |
|
$1,050,113 |
|
— |
|
$(2,010 |
) |
— |
|
$40,145 |
|
$2,139,000 |
|
— |
|
$3,227,247 |
|
**Transferred out of Level 2 into Level 3 because sufficient observable inputs were not available.
The net change in unrealized appreciation/depreciation of Level 3 investments which the Fund held at October 31, 2010 was $40,145.
At October 31, 2010, the cost basis of portfolio securities of $677,869,301 is substantially the same for both for federal income tax and book purposes. Aggregate gross unrealized appreciation for securities in which there is an excess value over tax cost is $94,434,265; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $6,748,122; and net unrealized appreciation for federal income tax purposes is $87,686,143.
Item 2. Controls and Procedures
(a) The registrant’s President & Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))), are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 3. Exhibits
(a) Exhibit 99.302 Cert. — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: PIMCO Income Strategy Fund II
|
By |
/s/ Brian S. Shlissel |
|
|
President & Chief Executive Officer |
| |
|
|
| |
|
Date: December 17, 2010 |
| |
|
|
| |
|
By |
/s/ Lawrence G. Altadonna |
|
|
Treasurer, Principal Financial & Accounting Officer |
| |
|
|
| |
|
Date: December 17, 2010 |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
By |
/s/ Brian S. Shlissel |
|
|
President & Chief Executive Officer |
| |
|
|
| |
|
Date: December 17, 2010 |
| |
|
|
| |
|
By |
/s/ Lawrence G. Altadonna |
|
|
Treasurer, Principal Financial & Accounting Officer |
| |
|
|
| |
|
Date: December 17, 2010 |
| |