OREANDA-NEWS. February 26, 2016. Fitch Ratings has affirmed the 'AAA' ratings assigned to the auction-rate preferred shares (ARPS) issued by the following four closed-end funds managed by Pacific Investment Management Company LLC (PIMCO):

PIMCO High Income Fund (NYSE: PHK), total \\$102 million in ARPS:
--\\$17.2 million of Series M perpetual ARPS, \\$25,000 per share, 688 shares;
--\\$24 million of Series T perpetual ARPS, \\$25,000 per share, 958 shares;
--\\$18.5 million of Series W perpetual ARPS, \\$25,000 per share, 738 shares;
--\\$18.9 million of Series TH perpetual ARPS, \\$25,000 per share, 757 shares;
--\\$23.5 million of Series F perpetual ARPS, \\$25,000 per share, 938 shares.

PIMCO Corporate & Income Strategy Fund (NYSE: PCN), total \\$56 million ARPS:
--\\$10.2 million of Series M perpetual ARPS, \\$25,000 per share, 406 shares;
--\\$11.2 million of Series T perpetual ARPS, \\$25,000 per share, 449 shares;
--\\$11.9 million of Series W perpetual ARPS, \\$25,000 per share, 473 shares;
--\\$10.9 million of Series TH perpetual ARPS, \\$25,000 per share, 434 shares;
--\\$11.5 million of Series F perpetual ARPS, \\$25,000 per share, 459 shares.

PIMCO Income Strategy Fund (NYSE: PFL), total \\$51.3 Million ARPS:
--\\$19.2 million of Series T perpetual ARPS, \\$25,000 per share, 766 shares;
--\\$17.5 million of Series W perpetual ARPS, \\$25,000 per share, 699 shares; and
--\\$14.7 million of Series TH perpetual ARPS, \\$25,000 per share, 586 shares.

PIMCO Income Strategy Fund II (NYSE: PFN), total \\$92.5 million ARPS:
--\\$18 million of Series M perpetual ARPS, \\$25,000 per share, 721 shares;
--\\$22 million of Series T perpetual ARPS, \\$25,000 per share, 881 shares;
--\\$16.8 million of Series W perpetual ARPS, \\$25,000 per share, 671 shares;
--\\$18.8 million of Series TH perpetual ARPS, \\$25,000 per share, 753 shares;
--\\$16.8 million of Series F perpetual ARPS, \\$25,000 per share, 672 shares.

KEY RATING DRIVERS

The affirmations follow Fitch's annual reviews of the funds. The 'AAA' ratings are based on the following:

--Sufficient asset coverage provided to the ARPS as calculated per the fund's governing documents;
--The structural protections afforded by mandatory cure and de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the funds' operations;
--The capabilities of PIMCO as funds' investment manager.

Fitch's ratings assigned to the ARPS speak only to timely repayment of interest and principal in accordance with the governing documents and not to potential liquidity in the secondary market.

FUND PROFILES
As of Jan. 29, 2016, the portfolios invested in various sectors including cash-purchased corporate bonds and structured finance securities, credit default swaps referencing specific corporate and sovereign credits, and interest rate swaps held for purposes of income generation and managing duration.

FUND LEVERAGE
As of Jan. 29, 2016, the funds had the following asset and leverage profiles:

--PHK: total portfolio assets of approximately \\$1,042 million, current liabilities of \\$20 million and cash leverage of \\$193 million or 23% of net portfolio assets. Cash leverage consisted of approximately \\$91 million of reverse repurchase agreements and \\$102 million of rated ARPS. Unhedged net derivatives included \\$48 million of credit default swaps, \\$229 million in interest rate swaps and less than \\$1 million of foreign currency forwards.

--PCN: total portfolio assets of approximately \\$642 million, current liabilities of \\$20 million and cash leverage of \\$92 million or 17% of net portfolio assets. Cash leverage consisted of approximately \\$36 million of reverse repurchase agreements and \\$56 million of rated ARPS. Unhedged net derivatives included \\$35 million of credit default swaps, \\$49 million in interest rate swaps and less than \\$1 million of foreign currency forwards.

--PFL: total portfolio assets of approximately \\$324 million, current liabilities of \\$11 million and cash leverage of \\$61 million or 23% of net portfolio assets. Cash leverage consisted of approximately \\$9 million of reverse repurchase agreements and \\$51 million of rated ARPS. Unhedged net derivatives included \\$14 million of credit default swaps, \\$44 million in interest rate swaps and less than \\$1 million of foreign currency forwards.

--PFN: total portfolio assets of approximately \\$687 million, current liabilities of \\$26 million and cash leverage of \\$125 million or 22% of net portfolio assets. Cash leverage consisted of approximately \\$33 million of reverse repurchase agreements and \\$92 million of rated ARPS. Unhedged net derivatives included \\$35 million of credit default swaps, \\$107 million in interest rate swaps and less than \\$1 million of foreign currency forwards.

ASSET COVERAGE
As of Jan. 29, 2016, the funds' asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's closed-end fund criteria, were in excess of 100%. These tests incorporate fund's use of non-traditional leverage and derivatives per Fitch's rating criteria. These are the minimum asset coverage guidelines required by the fund's governing documents.

The Fitch OC tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on riskiness and diversification of the assets and measuring their ability to cover both on- and off- balance-sheet liabilities at the stress level that corresponds to the assigned rating.

As of Jan 29, 2016, the funds' asset coverage ratio for total outstanding ARPS, as calculated by PIMCO in accordance with the Investment Company Act of 1940 was also in excess of 200%. This is also a minimum asset coverage required by the funds' governing documents.

ARPS STRUCTURAL PROTECTIONS
The fund manager is required to cure a breach in the fund's asset coverage tests by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and Asset Coverage Test breaches) within a pre-specified time period (a maximum of 38 calendar days).

THE MANAGER
PIMCO, a Delaware limited liability company, serves as investment adviser to the funds. PIMCO had approximately \\$1.43 trillion of assets under management as of Dec. 31, 2015. PIMCO is a majority owned subsidiary of Allianz Asset Management with minority interests held by certain of its current and former officers, by Allianz Asset Management of America LLC, and by PIMCO Partners, LLC, a California limited liability company. Through various holding company structures, Allianz Asset Management is majority owned by Allianz SE.

RATING SENSITIVITIES
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the fund, including the risk exposure assumed by the funds' use of interest rate swaps. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the rating.

Additional information is available at 'www.fitchratings.com'.

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