PCM Fund, Inc.

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: 811-07816

PCM Fund Inc.

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

William G. Galipeau

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive

Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

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

Date of fiscal year end: June 30

Date of reporting period: June 30, 2016

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

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


Item 1. Reports to Shareholders.

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


LOGO

 

PIMCO Closed-End Funds

 

LOGO      LOGO      LOGO

 

LOGO      LOGO      LOGO

 

 

Annual Report

 

June 30, 2016

 

LOGO

 

PCM Fund, Inc.

PIMCO Global StocksPLUS® & Income Fund

PIMCO Income Opportunity Fund

PIMCO Strategic Income Fund, Inc.

PIMCO Dynamic Credit and Mortgage Income Fund

(formerly PIMCO Dynamic Credit Income Fund)

PIMCO Dynamic Income Fund

 

LOGO


Table of Contents

 

            Page  
     

Letter from the Chairman of the Board & President

        2   

Important Information About the Funds

        4   

Financial Highlights

        16   

Statements of Assets and Liabilities

        18   

Consolidated Statements of Assets and Liabilities

        19   

Statements of Operations

        20   

Consolidated Statements of Operations

        21   

Statements of Changes in Net Assets

        22   

Consolidated Statements of Changes in Net Assets

        24   

Statements of Cash Flows

        25   

Consolidated Statements of Cash Flows

        26   

Notes to Financial Statements

        89   

Report of Independent Registered Public Accounting Firm

        112   

Glossary

        113   

Federal Income Tax Information

        114   

Shareholder Meeting Results

        115   

Investment Strategy Updates

        116   

Dividend Reinvestment Plan

        118   

Management of the Funds

        120   

Approval of Investment Management Agreement

        123   

Privacy Policy

        130   
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PCM Fund, Inc.

     9         27   

PIMCO Global StocksPLUS® & Income Fund

     10         34   

PIMCO Income Opportunity Fund

     11         45   

PIMCO Strategic Income Fund, Inc.

     12         56   

PIMCO Dynamic Credit and Mortgage Income Fund(1)

     13         65   

PIMCO Dynamic Income Fund(1)

     14         79   

 

  (1) 

Consolidated Schedule of Investments


Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2   PIMCO CLOSED-END FUNDS     


Outlook

 

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

 

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

 

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

 

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

 

Sincerely,

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   3


Important Information About the Funds

 

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

 

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

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

 

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

 

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

 

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

 

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

 

 

4   PIMCO CLOSED-END FUNDS     


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

 

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

 

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

 

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

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

 

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

 

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

 

 

  ANNUAL REPORT   JUNE 30, 2016   5


Important Information About the Funds (Cont.)

 

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

 

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

 

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

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

 

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

 

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

 

 

6   PIMCO CLOSED-END FUNDS     


 

 

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

 

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

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

 

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

 

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

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

 

 

  ANNUAL REPORT   JUNE 30, 2016   7


Important Information About the Funds (Cont.)

 

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

 

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

 

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

 

Fund Name         Commencement
of Operations
    Diversification
Status

PCM Fund, Inc.

      09/02/93      Diversified

PIMCO Global StocksPLUS & Income Fund

      05/31/05      Diversified

PIMCO Income Opportunity Fund

      11/30/07      Diversified

PIMCO Strategic Income Fund, Inc.

      02/24/94      Diversified

PIMCO Dynamic Credit and Mortgage Income Fund

      01/31/13      Diversified

PIMCO Dynamic Income Fund

      05/30/12      Diversified

 

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

 

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

Information (SAI), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings from or on behalf of a Fund creates a contract between or among any shareholder of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand. The Trustees (or the Funds and their officers, service providers or other delegates acting under authority of the Trustees) may amend its most recent or use a new prospectus or SAI with respect to a Fund, adopt and disclose new or amended policies and other changes in press releases and shareholder reports and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement was specifically disclosed in a Fund’s prospectus, SAI or shareholder report and is otherwise still in effect.

 

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

 

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

 

 

 

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

 

8   PIMCO CLOSED-END FUNDS     


PCM Fund, Inc.

 

Symbol on NYSE - PCM

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    38.7%   

Asset-Backed Securities

    34.1%   

Corporate Bonds & Notes

    16.0%   

Short-Term Instruments

    6.4%   

Bank Loan Obligations

    2.8%   

Other

    2.0%   
   

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

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

 

Market Price

    $9.72   

NAV

    $9.71   

Premium/(Discount) to NAV

    0.10%   

Market Price Distribution Yield(2)

    9.88%   

NAV Distribution Yield(2)

    9.89%   

Total Effective Leverage(3)

    46%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

  ANNUAL REPORT   JUNE 30, 2016   9


PIMCO Global StocksPLUS® & Income Fund

 

Symbol on NYSE - PGP

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    39.3%   

Corporate Bonds & Notes

    31.9%   

Short-Term Instruments

    13.4%   

Asset-Backed Securities

    10.5%   

U.S. Government Agencies

    1.9%   

Other

    3.0%   
   

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

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

 

Market Price

    $19.53   

NAV

    $9.76   

Premium/(Discount) to NAV

    100.10%   

Market Price Distribution Yield(2)

    11.27%   

NAV Distribution Yield(2)

    22.54%   

Total Effective Leverage(3)

    45%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

10   PIMCO CLOSED-END FUNDS     


PIMCO Income Opportunity Fund

 

Symbol on NYSE - PKO

 

Allocation Breakdown

 

Corporate Bonds & Notes

    33.4%   

Asset-Backed Securities

    26.6%   

Non-Agency Mortgage-Backed Securities

    26.0%   

Short-Term Instruments

    5.6%   

Convertible Preferred Securities

    3.4%   

Other

    5.0%   
   

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

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

 

Market Price

    $23.00   

NAV

    $22.59   

Premium/(Discount) to NAV

    1.81%   

Market Price Distribution Yield(2)

    9.91%   

NAV Distribution Yield(2)

    10.09%   

Total Effective Leverage(3)

    43%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

  ANNUAL REPORT   JUNE 30, 2016   11


PIMCO Strategic Income Fund, Inc.

 

Symbol on NYSE - RCS

 

Allocation Breakdown

 

U.S. Government Agencies

    59.5%   

Non-Agency Mortgage-Backed Securities

    14.1%   

Corporate Bonds & Notes

    8.4%   

U.S. Treasury Obligations

    8.1%   

Asset-Backed Securities

    6.4%   

Short-Term Instruments

    1.7%   

Other

    1.8%   
   

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

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

 

Market Price

    $9.61   

NAV

    $7.89   

Premium/(Discount) to NAV

    21.80%   

Market Price Distribution Yield(2)

    9.99%   

NAV Distribution Yield(2)

    12.17%   

Total Effective Leverage(3)

    25%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

12   PIMCO CLOSED-END FUNDS     


PIMCO Dynamic Credit and Mortgage Income Fund

 

Symbol on NYSE - PCI

 

Allocation Breakdown

 

Asset-Backed Securities

    42.6%   

Corporate Bonds & Notes

    24.9%   

Non-Agency Mortgage-Backed Securities

    23.8%   

Short-Term Instruments

    5.5%   

Bank Loan Obligations

    2.0%   

Other

    1.2%   
   

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

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

 

Market Price

    $19.13   

NAV

    $20.43   

Premium/(Discount) to NAV

    (6.36)%   

Market Price Distribution Yield(2)

    10.29%   

NAV Distribution Yield(2)

    9.64%   

Total Effective Leverage(3)

    47%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

  ANNUAL REPORT   JUNE 30, 2016   13


PIMCO Dynamic Income Fund

 

Symbol on NYSE - PDI

 

Allocation Breakdown

 

Non-Agency Mortgage-Backed Securities

    54.5%   

Asset-Backed Securities

    24.7%   

Corporate Bonds & Notes

    11.7%   

Short-Term Instruments

    5.6%   

U.S. Government Agencies

    1.3%   

Other

    2.2%   
   

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

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

 

Market Price

    $27.57   

NAV

    $26.56   

Premium/(Discount) to NAV

    3.80%   

Market Price Distribution Yield(2)

    9.60%   

NAV Distribution Yield(2)

    9.96%   

Total Effective Leverage(3)

    47%   
 

 

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

 

All Fund returns are net of fees and expenses.

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

Investment Objective and Strategy Overview

 

»  

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

 

Fund Insights at NAV

 

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

»  

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

 

14   PIMCO CLOSED-END FUNDS     


 

 

(THIS PAGE INTENTIONALLY LEFT BLANK)

 

  ANNUAL REPORT   JUNE 30, 2016   15


Financial Highlights

 

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

Net Realized/

Unrealized

Gain (Loss)

    Total            From Net
Investment
Income
   

    
From Net

Realized

Capital

Gain (Loss)

   

Tax Basis

Return of

Capital

    Total  

PCM Fund, Inc.

                 

06/30/2016

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

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

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

12/31/2014

    11.17        0.94        (0.34     0.60                (1.05     0.00        0.00        (1.05

12/31/2013

    11.35        1.12        (0.20     0.92                (1.10     0.00        0.00        (1.10

12/31/2012

    9.48        1.06        1.93        2.99                (1.12     0.00        0.00        (1.12

12/31/2011

    9.88        1.13        (0.47     0.66                (1.06     0.00        0.00        (1.06

PIMCO Global StocksPLUS® & Income Fund

                 

06/30/2016

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

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

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

03/31/2015

    14.72        1.15        (0.85     0.30                (2.20     0.00        0.00        (2.20

03/31/2014

    14.32        1.39        1.21        2.60                (2.20     0.00        0.00        (2.20

03/31/2013

    12.57        1.38        2.57        3.95                (2.20     0.00        0.00        (2.20

03/31/2012

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

PIMCO Income Opportunity Fund

                 

06/30/2016

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

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

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

10/31/2014

    28.67        2.71        (0.12     2.59                (2.88     0.00        0.00        (2.88

10/31/2013

    27.86        2.87        0.77        3.64                (2.83     0.00        0.00        (2.83

10/31/2012

    24.62        2.61        3.69        6.30                (3.06     0.00        0.00        (3.06

10/31/2011

    26.97        3.24        (2.20     1.04                (3.39     0.00        0.00        (3.39

PIMCO Strategic Income Fund, Inc.

                 

06/30/2016

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

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

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

01/31/2015

    9.24        0.90        (0.55     0.35                (1.02     0.00        0.00        (1.02

01/31/2014

    9.66        0.99        (0.30     0.69                (1.11     0.00        0.00        (1.11

01/31/2013

    8.91        1.05        0.95        2.00                (1.25     0.00        0.00        (1.25

01/31/2012

    9.97        1.36        (1.03     0.33                (1.39     0.00        0.00        (1.39

PIMCO Dynamic Credit and Mortgage Income Fund (Consolidated)

                 

06/30/2016

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

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

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

12/31/2014

    24.04        1.79        (0.53     1.26                (2.47     0.00        0.00        (2.47

01/31/2013 - 12/31/2013

    23.88        1.33        0.76        2.09                (1.68     (0.24     0.00        (1.92

PIMCO Dynamic Income Fund (Consolidated)

                 

06/30/2016

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

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

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

03/31/2015

    32.11        3.25        (0.49     2.76                (4.13     0.00        0.00        (4.13

03/31/2014

    30.69        3.70        1.24        4.94                (3.29     (0.23     0.00        (3.52

05/30/2012 - 03/31/2013

    23.88        2.79        6.50        9.29                (2.18     (0.27     0.00        (2.45

 

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

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

(b) 

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

(c) 

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

(d) 

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

(e) 

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

(f) 

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

g) 

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

(h) 

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

(i) 

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

 

16   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


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

 

  ANNUAL REPORT   JUNE 30, 2016   17


Statements of Assets and Liabilities

 

June 30, 2016

 

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

Assets:

       

Investments, at value

                               

Investments in securities*

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

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    17        1,231        220        796   

Over the counter

    0        392        2,827        2,494   

Cash

    422        2        90        79   

Deposits with counterparty

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

Foreign currency, at value

    0        53        344        485   

Receivable for investments sold

    5,553        2,345        5,176        11   

Receivable for mortgage dollar rolls

    0        0        0        268,511   

Interest and/or dividends receivable

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

Other assets

    2        2        3        3   

Total Assets

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

Liabilities:

       

Borrowings & Other Financing Transactions

                               

Payable for reverse repurchase agreements

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

Payable for sale-buyback transactions

    0        0        0        39,895   

Payable for mortgage dollar rolls

    0        0        0        268,511   

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    6        1,211        9        22   

Over the counter

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

Payable for investments purchased

    0        1,600        2,274        14   

Payable for TBA investments purchased

    0        0        0        370,541   

Deposits from counterparty

    0        20        2,561        6,001   

Distributions payable to common shareholders

    924        1,946        2,846        3,369   

Accrued management fees

    143        165        479        258   

Other liabilities

    30        6        13        304   

Total Liabilities

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

Net Assets

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

Net Asset Consist of:

       

Shares:

                               

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

  $ 12      $ 0      $ 0      $ 0   

Paid in capital in excess of par

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

Undistributed (overdistributed) net investment income

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

Accumulated undistributed net realized (loss)

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

Net unrealized appreciation (depreciation)

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

Net Assets Applicable to Common Shareholders

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

Common Shares Issued and Outstanding

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

Net Asset Value Per Common Share

  $ 9.71      $ 9.76      $ 22.59      $ 7.89   

Cost of investments in securities

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

Cost of foreign currency held

  $ 0      $ 53      $ 350      $ 469   

Cost or premiums of financial derivative instruments, net

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

* Includes repurchase agreements of:

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

 

 

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

 

18   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Statements of Assets and Liabilities

 

June 30, 2016

 

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

Assets:

   

Investments, at value

               

Investments in securities*

  $   5,055,464      $   2,257,021   

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    4,504        2,039   

Over the counter

    20,666        12,378   

Cash

    737        153   

Deposits with counterparty

    103,212        29,710   

Receivable for investments sold

    66,882        5,464   

Interest and/or dividends receivable

    26,606        9,888   

Other assets

    12        5   

Total Assets

      5,278,083          2,316,658   

Liabilities:

   

Borrowings & Other Financing Transactions

               

Payable for reverse repurchase agreements

  $   2,380,836      $   1,028,000   

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    1,944        691   

Over the counter

    14,687        21,637   

Payable for investments purchased

    29,193        19,299   

Deposits from counterparty

    19,376        12,099   

Distributions payable to common shareholders

    22,513        10,148   

Overdraft due to custodian

    593        112   

Accrued management fees

    4,831        2,124   

Other liabilities

    107        49   

Total Liabilities

      2,474,080          1,094,159   

Net Assets Applicable to Common Shareholders

  $   2,804,003      $   1,222,499   

Composition of Net Assets Applicable to Common Shareholders:

   

Par value ($0.00001 per share)

  $ 1      $ 0   

Paid in capital in excess of par

    3,274,226        1,101,390   

Undistributed (overdistributed) net investment income

    40,338        35,233   

Accumulated undistributed net realized (loss)

    (233,853     (23,016

Net unrealized appreciation (depreciation)

    (276,709     108,892   

Net Assets Applicable to Common Shareholders

  $ 2,804,003      $ 1,222,499   

Common Shares Issued and Outstanding

    137,221        46,025   

Net Asset Value Per Common Share

  $ 20.43      $ 26.56   

Cost of investments in securities

  $   5,384,161      $   2,156,321   

Cost or premiums of financial derivative instruments, net

  $ (6,270   $ (31,172

* Includes repurchase agreements of:

  $ 242,219      $ 104,632   

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   19


Statements of Operations

 

Year Ended June 30, 2016                        
(Amounts in thousands)  

PCM Fund,

Inc.

   

PIMCO

Global

StocksPLUS®  &

Income

Fund

   

PIMCO

Income

Opportunity

Fund

   

PIMCO

Strategic

Income Fund,

Inc.

 

Investment Income:

       

Interest, net of foreign taxes*

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

Dividends

    5        25        1,180        14   

Total Income

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

Expenses:

       

Management fees

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

Trustee fees and related expenses

    17        18        51        49   

Interest expense

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

Miscellaneous expense

    0        1        18        10   

Total Expenses

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

Net Investment Income

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

Net Realized Gain (Loss):

       

Investments in securities

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

Exchange-traded or centrally cleared financial derivative instruments

    (307     241        (3,674     (19,203

Over the counter financial derivative instruments

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

Foreign currency

    0        20        603        (16

Net Realized Gain (Loss)

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

Net Change in Unrealized Appreciation (Depreciation):

       

Investments in securities

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

Exchange-traded or centrally cleared financial derivative instruments

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

Over the counter financial derivative instruments

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

Foreign currency assets and liabilities

    0        691        1,731        55   

Net Change in Unrealized (Depreciation)

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

Net Increase (Decrease) in Net Assets Resulting from Operations

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

* Foreign tax withholdings

  $ 0      $ 0      $ 1      $ 0   

 

 

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

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Consolidated Statements of Operations

 

Year Ended June 30, 2016            
(Amounts in thousands)  

PIMCO

Dynamic

Credit and

Mortgage

Income Fund

   

PIMCO

Dynamic

Income Fund

 

Investment Income:

   

Interest, net of foreign taxes*

  $ 368,116      $ 222,967   

Dividends

    7        622   

Total Income

    368,123        223,589   

Expenses:

   

Management fees

    57,918        27,247   

Trustee fees and related expenses

    427        199   

Interest expense

    33,458        19,102   

Miscellaneous expense

    93        61   

Total Expenses

    91,896        46,609   

Net Investment Income

    276,227        176,980   

Net Realized Gain (Loss):

   

Investments in securities

    (84,858     (23,907

Exchange-traded or centrally cleared financial derivative instruments

    (25,410     3,245   

Over the counter financial derivative instruments

    25,586        20,502   

Foreign currency

    (3,641     (37

Net Realized (Loss)

    (88,323     (197

Net Change in Unrealized Appreciation (Depreciation):

   

Investments in securities

    (276,391     (135,465

Exchange-traded or centrally cleared financial derivative instruments

    8,980        (25,040

Over the counter financial derivative instruments

    (3,083     (594

Foreign currency assets and liabilities

    30,476        3,872   

Net Change in Unrealized (Depreciation)

      (240,018       (157,227

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ (52,114   $ 19,556   

* Foreign tax withholdings

  $ 12      $ 0   

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2016   21


Statements of Changes in Net Assets

 

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

Year Ended

June 30, 2016

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

Year Ended

December 31, 2014

          

Year Ended

June 30, 2016

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

Year Ended

March 31, 2015

 

Increase (Decrease) in Net Assets from:

             

Operations:

             

Net investment income

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

Net realized gain (loss)

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

Net change in unrealized appreciation (depreciation)

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

Net Increase (Decrease) in Net Assets Resulting from Operations

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

Distributions to Common Shareholders:

             

From net investment income

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

From net realized capital gains

    0        0        0                0        0        0   

Tax basis return of capital

    0        0        0                (1,918     0        0   

Total Distributions to Common Shareholders(e)

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

Common Share Transactions**:

             

Issued as reinvestment of distributions

    42        72        178                1,607        391        1,690   

Total Increase (Decrease) in Net Assets

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

Net Assets Applicable to Common Shareholders:

             

Beginning of year or period

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

End of year or period*

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

* Including undistributed (overdistributed) net investment income of:

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

** Common Share Transactions:

             

Shares issued as reinvestment of distributions

    4        7        16                96        18        78   

 

 

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

(a) 

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

(b) 

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

(c) 

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

(d) 

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

(e) 

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

(f) 

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

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


 

PIMCO Income Opportunity Fund            PIMCO Strategic Income Fund, Inc.  

Year Ended

June 30, 2016

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

Year Ended

October 31, 2014

          

Year Ended

June 30, 2016

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

Year Ended

January 31, 2015

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

 

  ANNUAL REPORT   JUNE 30, 2016   23


Consolidated Statements of Changes in Net Assets

 

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

Year Ended

June 30, 2016

   

For the Period

January 1, 2015 -

June 30, 2015(a)

    Year Ended
December 31, 2014
   

Year Ended

June 30, 2016

   

For the Period

April 1, 2015 -

June 30, 2015(b)

   

Year Ended

March 31, 2015

 

Increase (Decrease) in Net Assets from:

           

Operations:

           

Net investment income

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

Net realized gain (loss)

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

Net change in unrealized appreciation (depreciation)

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

Net Increase (Decrease) in Net Assets Resulting from Operations

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

Distributions to Common Shareholders:

           

From net investment income

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

From net realized capital gains

    0        0        0        (45,024     0        0   

Total Distributions to Common Shareholders(c)

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

Common Share Transactions**:

           

Offering costs charged to paid in capital in excess of par

    0        0        (23     0        0        0   

Issued as reinvestment of distributions

    0        0        0        14,752        0        1,309   

Net increase (decrease) resulting from common share transactions

    0        0        (23     14,752        0        1,309   

Total Increase (Decrease) in Net Assets

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

Net Assets Applicable to Common Shareholders:

           

Beginning of year or period

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

End of year or period*

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

* Including undistributed (overdistributed) net investment income of:

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

** Common Share Transactions:

           

Shares issued as reinvestment of distributions

    0        0        0        546        0        41   

 

 

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

(a) 

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

(b) 

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

(c) 

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

(d) 

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

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Statements of Cash Flows

 

Year Ended June 30, 2016