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, 2017

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).

 


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PIMCO Closed-End Funds

 

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Annual Report

 

June 30, 2017

 

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PCM Fund, Inc.

PIMCO Global StocksPLUS® & Income Fund

PIMCO Income Opportunity Fund

PIMCO Strategic Income Fund, Inc.

PIMCO Dynamic Credit and Mortgage Income Fund

PIMCO Dynamic Income Fund

 

 

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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

        95  

Report of Independent Registered Public Accounting Firm

        119  

Glossary

        120  

Federal Income Tax Information

        121  

Shareholder Meeting Results

        122  

Changes to Boards of Trustees/Changes to Portfolio Managers

        124  

Investment Strategy Updates

        125  

Dividend Reinvestment Plan

        126  

Management of the Funds

        128  

Approval of Investment Management Agreement

        131  

Privacy Policy

        137  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PCM Fund, Inc.

     10        27  

PIMCO Global StocksPLUS® & Income Fund

     11        35  

PIMCO Income Opportunity Fund

     12        46  

PIMCO Strategic Income Fund, Inc.

     13        58  

PIMCO Dynamic Credit and Mortgage Income Fund(1)

     14        68  

PIMCO Dynamic Income Fund(1)

     15        83  

 

  (1) 

Consolidated Schedule of Investments


Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

The global equity markets generated strong results during the reporting period against a backdrop of solid corporate profits and signs of improving global growth. Meanwhile, the global fixed income market generated weak results as U.S. monetary policy tightened, whereas many international central banks maintained accommodative monetary policies.

 

For the 12-month reporting period ended June 30, 2017

 

The U.S. economy continued to expand at a relatively modest pace during the reporting period. 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 revised 2.8% annual pace during the third quarter of 2016 — the strongest reading since the first quarter of 2015. GDP growth then moderated, growing at a revised annual pace of 1.8% during the fourth quarter of 2016 and 1.2% for the first quarter of 2017, respectively. Finally, the Commerce Department’s initial reading — released after the reporting period had ended — showed that second quarter 2017 GDP grew at an annual pace of 2.6%.

 

The Federal Reserve (“Fed”) continued to normalize monetary policy, with three interest rate hikes during the reporting period. The first occurrence was in December 2016, followed by rate hikes at its meetings in March and June 2017. The second move put the federal funds rate between 1.00% and 1.25%. In its official statement following the Fed’s June meeting, the Fed said, “The Committee expects that economic conditions will evolve in a manner that will warrant 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.” The Fed also indicated that it expects to begin reducing its balance sheet later this year.

 

Economic activity outside the U.S. generally improved during the reporting period. Nevertheless, a number of central banks, including the European Central Bank, Bank of England and Bank of Japan, maintained their highly accommodative monetary policies. However, toward the end of the reporting period, several central banks indicated that they may pare back their quantitative easing programs should growth improve and inflation increase.

 

Commodity prices fluctuated during the 12 months ended June 30, 2017. In June 2016, crude oil was approximately $48 a barrel, and was roughly $54 a barrel at the end of 2016. Prices then declined on elevated supplies and crude oil ended the reporting period at approximately $46. Finally, there were gyrations in foreign exchange markets, possibly due at least in part to changing expectations for global growth, decoupling central bank policy, Brexit, the surprise outcome from the November U.S. elections and a number of geopolitical events.

 

Outlook

 

PIMCO’s baseline view is that the U.S. economy is likely to grow at about 2% per year, with inflation running close to the Fed’s target of 2%. PIMCO’s forecast for the federal funds rate at the end of it secular horizon is anchored in a “New Neutral” range of 2% to 3%, but with the risks skewed to the downside on rates. In PIMCO’s view, of real concern for the U.S. outlook, as well as the global outlook, is the “driving-without-a-spare-tire risk” at this late stage of the business cycle. In the next recession, whenever it occurs, PIMCO believes the Fed and other central banks will have less room to cut rates than in past cycles. Some countries — for example, the U.S., China, Germany — will likely have some “fiscal space” to deploy in the next downturn, but with sovereign debt levels already elevated, fiscal policy is unlikely to fully offset the constraints on monetary policy in the next global downturn.

 

For the eurozone, under PIMCO’s baseline secular scenario, there would be trend growth of 1.25% on average over the next five years, with inflation hovering between 1% and 2%. PIMCO sees risk to its outlook as roughly balanced for the eurozone in the near term, but with risk increasing and tilting to the downside toward the end of its secular horizon. For Japan, PIMCO’s base case secular outlook is for 0% to 1% inflation, with the Bank of Japan only

 

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gradually being able to raise the 10-year yield target. Finally, for China, PIMCO’s baseline scenario is that growth slows gradually to about 5.5%.

 

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, 2017.

 

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,

 

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

 

  ANNUAL REPORT   JUNE 30, 2017   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 wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). This risk may be particularly acute in the current market environment because market interest rates are currently near historically low levels. This, combined with recent economic recovery, the Federal Reserve Board’s conclusion of its quantitative easing program, and increases in federal funds interest rates in 2015, 2016 and 2017, which had not occurred since 2006, could potentially increase the probability of an updated interest rate environment in the near future. To the extent the Federal Reserve Board continues to raise interest rates, there is a risk that rates across the financial system may rise. 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. The regulation of the derivatives markets has increased over the past several years, and additional future regulation of the derivatives markets may make derivatives more costly, may limit the availability or reduce the liquidity of derivatives, or may otherwise adversely affect the value or performance of derivatives. Any such adverse future developments could impair the effectiveness of a Fund’s derivative transactions and cause a Fund to lose value. For instance, in December 2015, the SEC proposed new regulations applicable to a registered investment company’s use of derivatives and related instruments. If adopted as proposed, these regulations could significantly limit or impact a Fund’s ability to invest in derivatives and other instruments, limit a Fund’s ability to employ certain strategies that use derivatives and/or adversely affect a Fund’s performance, efficiency in implementing its strategy, liquidity and/or ability to pursue its investment objectives.

 

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

 

 

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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 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 of leverage to the Fund could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to the Fund’s common shareholders. In addition, fees and expenses of any form of leverage used by a Fund will be borne entirely by its common shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Fund’s common shares.

 

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.

 

 

  ANNUAL REPORT   JUNE 30, 2017   5


Important Information About the Funds (Cont.)

 

 

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. A Fund may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or, with respect to certain Funds, 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 represent interests in “pools” of mortgages or other assets such as consumer loans or receivables held in trust and often involve risks that are different from or possibly more acute than risks associated with other types of debt instruments. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, if a Fund holds mortgage-related securities, it may exhibit additional volatility since individual mortgage holders are less likely to exercise prepayment options, thereby putting additional downward pressure on the value of these securities and potentially causing the Fund to lose money. This is known as extension risk. Mortgage-backed securities can be highly sensitive to rising interest rates, such that even small movements can cause an investing Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. In addition, adjustable and fixed rate mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Funds because the Funds may have to reinvest that money at the lower prevailing interest rates. The Funds’ investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related

securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset-backed securities may be largely dependent upon the cash flows generated by the assets backing the securities, and asset-backed securities may not have the benefit of any security interest in the related assets. Additionally, investments in subordinate mortgage-backed and other asset-backed securities will be subject to risks arising from delinquencies and foreclosures, thereby exposing a Fund’s investment portfolio to potential losses. Subordinate securities of mortgage-backed and other asset-backed securities are also subject to greater credit risk than those mortgage-backed or other asset-backed securities that are more highly rated.

 

A Fund may also invest in the residual or equity tranches of mortgage-related and other asset-backed securities, which may be referred to as subordinate mortgage-backed or asset-backed securities and interest-only mortgage-backed or asset-backed securities. Subordinate mortgage-backed or asset-backed securities are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate mortgage-backed or asset-backed securities will not be fully paid. There are multiple tranches of mortgage-backed and asset backed-securities, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity or “first loss,” according to their degree of risk. The most senior tranche of a mortgage-backed or asset-backed security has the greatest collateralization and pays the lowest interest rate. If there are defaults or the collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. Lower tranches represent lower degrees of credit quality and pay higher interest rates intended to compensate for the attendant risks. The return on the lower tranches is especially sensitive to the rate of defaults in the collateral pool. The lowest tranche (i.e., the “equity” or “residual” tranche) specifically receives the residual interest payments (i.e., money that is left over after the higher tranches have been paid and expenses of the issuing entities have been paid) rather than a fixed interest rate. Each Fund expects that investments in subordinate mortgage-backed and other asset-backed securities will be subject to risks arising from delinquencies and foreclosures, thereby exposing its investment portfolio to potential losses. Subordinate securities of mortgage-backed and other asset-backed securities are also subject to greater credit risk than those mortgage-backed or other asset-backed securities that are more highly rated.

 

 

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The risk of investing in collateralized loan obligations (“CLOs”), include prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest rate risk. CLOs may carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the possibility that the investments in CLOs are subordinate to other classes or tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

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 obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Defaulted securities are often illiquid and may not be actively traded. 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 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.

 

As the use of technology has become more prevalent in the course of business, the Funds have become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may, among other things, cause a Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations. Cyber security 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 involving a Fund’s third party service providers (including but not limited to advisers, sub-advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties or issuers in which a Fund invests can also subject a Fund to many of the same risks associated with direct cyber security breaches. Moreover, cyber security breaches involving trading counterparties or issuers in which a Fund invests could adversely impact such counterparties or issuers and cause the Fund’s investment to lose value.

 

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

 

 

  ANNUAL REPORT   JUNE 30, 2017   7


Important Information About the Funds (Cont.)

 

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; additional compliance and cyber security risk management costs and other adverse consequences. 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 business continuity plans and risk management systems designed to reduce the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee that such efforts will succeed, especially because the Funds do not directly control the cyber security systems of issuers in which a Fund may invest, trading counterparties or third party service providers to the Funds. There is also a risk that cyber security breaches may not be detected. The Funds and their shareholders could be negatively impacted as a result.

 

The Funds may invest in securities and instruments that are economically tied to Russia. Investments in Russia are subject to various risks such as political, economic, legal, market and currency 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, including, but not limited to, the following: asset allocation risk, credit risk, stressed securities risk, distressed and defaulted securities risk, corporate bond risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, extension risk, prepayment risk, privately issued mortgage-related securities risk, mortgage market/ subprime risk, foreign (non-U.S.) investment risk, emerging markets risk, currency risk, redenomination risk, non-diversification risk, management risk, municipal bond risk, inflation-indexed security risk, senior debt risk, loans, participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, foreign (non-U.S.) government securities risk, valuation risk, segregation and cover risk, focused investment risk, credit default swaps risk, event-linked securities risk, counterparty risk, preferred securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory risk, tax risk, recent economic conditions risk, market disruptions and geopolitical risk, potential conflicts of interest 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.

 

 

8   PIMCO CLOSED-END FUNDS     


 

 

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 shareholders of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand.

 

The Trustees (or the Funds and their officers, service providers or other delegates acting under authority of the Trustees) may amend its most

recent or use a new prospectus or SAI with respect to a Fund, adopt and disclose new or amended policies and other changes in press releases and shareholder reports and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement was specifically disclosed in a Fund’s prospectus, SAI or shareholder report and is otherwise still in effect.

 

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940. The Proxy Policy has been adopted by the Funds as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures 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.

 

  ANNUAL REPORT   JUNE 30, 2017   9


PCM Fund, Inc.

 

  Symbol on NYSE - PCM

 

Allocation Breakdown as of 06/30/2017§

 

Asset-Backed Securities

    40.4%  

Non-Agency Mortgage-Backed Securities

    38.0%  

Corporate Bonds & Notes

    10.7%  

Short-Term Instruments

    3.9%  

U.S. Government Agencies

    2.7%  

Loan Participations and Assignments

    2.1%  

Preferred Securities

    1.2%  

Other

    1.0%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $11.23  

NAV

    $10.15  

Premium/(Discount) to NAV

    10.64%  

Market Price Distribution Yield(2)

    8.55%  

NAV Distribution Yield(2)

    9.46%  

Total Effective Leverage(3)

    42%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     5 Year     10 Year     Commencement
of Operations
(09/02/93)
 
Market Price     33.80%       11.49%       12.44%       9.17%  
NAV     21.15%       11.08%       11.04%       9.27%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance during the reporting period:

 

»  

Exposure to non-agency Residential MBS (mortgage-backed securities) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to high yield corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to Commercial MBS contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to investment grade corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to asset-backed securities (ABS) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to USD interest rates detracted from absolute performance, as interest rates rose.

 

10   PIMCO CLOSED-END FUNDS     


PIMCO Global StocksPLUS® & Income Fund

 

  Symbol on NYSE - PGP

 

Allocation Breakdown as of 06/30/2017§

 

Non-Agency Mortgage-Backed Securities

    36.8%  

Corporate Bonds & Notes

    33.4%  

Short-Term Instruments

    11.5%  

Asset-Backed Securities

    9.2%  

U.S. Government Agencies

    3.3%  

Municipal Bonds & Notes

    1.5%  

Preferred Securities

    1.4%  

Sovereign Issues

    1.0%  

Other

    1.9%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $18.40  

NAV

    $11.18  

Premium/(Discount) to NAV

    64.58%  

Market Price Distribution Yield(2)

    9.57%  

NAV Distribution Yield(2)

    15.74%  

Total Effective Leverage(3)

    35%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     5 Year     10 Year     Commencement
of Operations
(05/31/05)
 
Market Price     5.06%       9.55%       11.67%       11.97%  
NAV     37.48%       18.07%       11.59%       12.78%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

PIMCO 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

 

The following affected performance during the reporting period:

 

»  

The Fund’s exposure to equity index derivatives linked to the S&P 500 Index contributed to absolute returns over the twelve months ended June 30, 2017, as the S&P 500 Index returned 17.90% during the period.

 

»  

The Fund’s exposure to equity index derivatives linked to the MSCI EAFE Index contributed to absolute returns over the twelve months ended June 30, 2017, as the MSCI EAFE Index returned 20.27% during the period.

 

»  

The Fund’s bond alpha strategy added to returns. Drivers of performance included the following:

 

»  

Holdings of non-agency mortgages added to returns, as this sector generated positive returns.

 

»  

An allocation to high yield corporate bonds enhanced performance, as these holdings generated positive performance.

 

»  

A defensive option strategy involving written calls and purchased puts on the S&P 500 index detracted from performance, as the S&P 500 Index returned 17.90% during the period.

 

»  

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.

 

  ANNUAL REPORT   JUNE 30, 2017   11


PIMCO Income Opportunity Fund

 

  Symbol on NYSE - PKO

 

Allocation Breakdown as of 06/30/2017§

 

Corporate Bonds & Notes

    28.7%  

Asset-Backed Securities

    28.3%  

Non-Agency Mortgage-Backed Securities

    26.0%  

Short-Term Instruments

    6.4%  

Loan Participations and Assignments

    2.8%  

Other

    7.8%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $26.85  

NAV

    $25.17  

Premium/(Discount) to NAV

    6.67%  

Market Price Distribution Yield(2)

    8.49%  

NAV Distribution Yield(2)

    9.06%  

Total Effective Leverage(3)

    39%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     5 Year     Commencement
of Operations
(11/30/07)
 
Market Price     30.30%       12.38%       12.93%  
NAV     24.48%       12.35%       12.70%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance during the reporting period:

 

»  

Exposure to non-agency Residential mortgage-backed securities (MBS) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to high yield corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to investment grade corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to structured products contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to emerging market debt contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to Commercial MBS contributed to absolute returns, as the sector generated positive total returns.

 

»  

Exposure to USD interest rates detracted from absolute performance, as interest rates rose.

 

»  

Exposure to GBP interest rates detracted from absolute performance, as interest rates rose.

 

12   PIMCO CLOSED-END FUNDS     


PIMCO Strategic Income Fund, Inc.

 

  Symbol on NYSE - RCS

 

Allocation Breakdown as of 06/30/2017§

 

U.S. Government Agencies

    61.9%  

Non-Agency Mortgage-Backed Securities

    14.0%  

Corporate Bonds & Notes

    7.3%  

U.S. Treasury Obligations

    7.0%  

Asset-Backed Securities

    6.4%  

Short-Term Instruments

    1.5%  

Loan Participations and Assignments

    1.2%  

Other

    0.7%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $10.19  

NAV

    $7.75  

Premium/(Discount) to NAV

    31.48%  

Market Price Distribution Yield(2)

    8.48%  

NAV Distribution Yield(2)

    11.15%  

Total Effective Leverage(3)

    25%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     5 Year     10 Year     Commencement
of Operations
(02/24/94)
 
Market Price     17.12%       9.14%       12.34%       9.67%  
NAV     10.61%       9.22%       11.16%       8.71%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

The primary investment objective of PIMCO Strategic Income Fund, Inc. is 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

 

The following affected performance during the reporting period:

 

»  

Exposure to non-Agency Residential mortgage-backed securities (MBS) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to 30-year conventional MBS contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to high yield corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to investment grade corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to emerging market debt contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to Commercial MBS contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to USD interest rates detracted from absolute performance, as interest rates rose.

 

  ANNUAL REPORT   JUNE 30, 2017   13


PIMCO Dynamic Credit and Mortgage Income Fund

 

  Symbol on NYSE - PCI

 

Allocation Breakdown as of 06/30/2017§

 

Asset-Backed Securities

    45.2%  

Non-Agency Mortgage-Backed Securities

    29.6%  

Corporate Bonds & Notes

    16.4%  

Short-Term Instruments

    3.0%  

U.S. Government Agencies

    1.8%  

Other

    4.0%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $22.32  

NAV

    $22.91  

Premium/(Discount) to NAV

    (2.58)%  

Market Price Distribution Yield(2)

    8.82%  

NAV Distribution Yield(2)

    8.59%  

Total Effective Leverage(3)

    46%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     Commencement
of Operations
(01/31/13)
 
Market Price     32.10%       8.82%  
NAV     26.47%       8.59%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance during the reporting period:

 

»  

Exposure to non-agency Residential mortgage-backed securities (MBS) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to high yield corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to emerging market debt contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to structured products contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to Commercial MBS contributed to absolute returns, as the sector generated positive total returns.

 

»  

Exposure to USD interest rates detracted from absolute performance, as interest rates rose.

 

»  

Exposure to GBP interest rates detracted from absolute performance, as interest rates rose.

 

14   PIMCO CLOSED-END FUNDS     


PIMCO Dynamic Income Fund

 

  Symbol on NYSE - PDI

 

Allocation Breakdown as of 06/30/2017§

 

Non-Agency Mortgage-Backed Securities

    48.0%  

Asset-Backed Securities

    26.6%  

Corporate Bonds & Notes

    15.0%  

Short-Term Instruments

    6.1%  

U.S. Government Agencies

    2.2%  

Loan Participations and Assignments

    1.3%  

Other

    0.8%  
   

% of Investments, at value.

 

  § 

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

Fund Information (as of June 30, 2017)(1)

 

Market Price

    $30.18  

NAV

    $28.32  

Premium/(Discount) to NAV

    6.57%  

Market Price Distribution Yield(2)

    8.77%  

NAV Distribution Yield(2)

    9.34%  

Total Effective Leverage(3)

    47%  
 

 

Average Annual Total Return(1) for the period ended June 30, 2017  
    1 Year     5 Year     Commencement
of Operations
(05/30/12)
 
Market Price     27.07%       18.41%       18.54%  
NAV     24.22%       17.79%       18.31%  

 

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 in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

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

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance during the reporting period:

 

»  

Exposure to non-agency Residential mortgage-backed securities (MBS) contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to high yield corporate bonds contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to structured products contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to Commercial MBS contributed to absolute returns, as the sector generated positive total returns.

 

»  

Exposure to emerging market debt contributed to absolute performance, as the sector generated positive total returns.

 

»  

Exposure to USD interest rates detracted from absolute performance, as interest rates rose.

 

»  

Exposure to GBP interest rates detracted from absolute performance, as interest rates rose.

 

  ANNUAL REPORT   JUNE 30, 2017   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 Gains
    Tax Basis
Return of
Capital
    Total  

PCM Fund, Inc.

                 

06/30/2017

  $ 9.71     $ 0.98     $ 0.92     $ 1.90             $ (1.46   $ 0.00     $ 0.00     $ (1.46

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

PIMCO Global StocksPLUS® & Income Fund

                 

06/30/2017

  $ 9.76     $ 1.15     $ 2.14     $ 3.29             $ (1.67   $ 0.00     $ (0.20   $ (1.87

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

PIMCO Income Opportunity Fund

                 

06/30/2017

  $ 22.59     $ 2.28     $ 2.92     $ 5.20             $ (2.56   $ 0.00     $ (0.06   $ (2.62

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

PIMCO Strategic Income Fund, Inc.

                 

06/30/2017

  $ 7.89     $ 0.70     $ 0.08     $ 0.78             $ (0.80   $ 0.00     $ (0.12   $ (0.92

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

PIMCO Dynamic Credit and Mortgage Income Fund (Consolidated)

                 

06/30/2017

  $ 20.43     $ 1.62     $ 3.46     $ 5.08             $ (2.60   $ 0.00     $ 0.00     $ (2.60

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)

                 

06/30/2017

  $   26.56     $   2.60     $ 3.18     $ 5.78             $   (4.10   $ 0.00     $ 0.00     $   (4.10

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

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, Distributions—Common Shares, 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, Borrowings and Other Financing Transactions, 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        
Increase
resulting  from
at-the-market
offering
    Offering
Cost
Charged to
Paid in Capital
    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
Waivers(d)
    Expenses
Excluding
Interest
Expense(d)
    Expenses
Excluding
Interest
Expense and
Waivers(d)
    Net
Investment
Income (Loss)
    Portfolio
Turnover
Rate
 
                       
$ N/A     $ N/A     $ 10.15     $ 11.23       33.80           $ 117,402       3.05     3.05     1.54     1.54     9.81     13
  N/A       N/A       9.71       9.72       6.91               112,099       2.69       2.69       1.58       1.58       12.25       12  
  N/A       N/A       10.68       10.05       (1.28             123,235       2.26     2.26     1.54     1.54     8.32     20  
  N/A       N/A       10.72       10.65       0.34               123,633       1.89       1.89       1.40       1.40       8.38       11  
  N/A       N/A       11.17       11.65       6.49               128,672       2.05       2.05       1.52       1.52       9.75       6  
  N/A       N/A       11.35       12.02       23.34               130,461       2.59       2.59       1.76       1.76       10.05       13  
                       
$ N/A     $ N/A     $ 11.18     $ 18.40       5.06           $ 119,538       3.20     3.20     1.88     1.88     11.09     25
  N/A       N/A       9.76       19.53       31.38               103,627       2.75       2.75       1.82       1.82       10.56       26  
  N/A       N/A       12.88       16.92       (21.82             135,468       2.34     2.34     1.72     1.72     10.35     3  
  N/A       N/A       12.82       22.27       4.05               134,594       2.30       2.30       1.78       1.78       8.29       92  
  N/A       N/A       14.72       23.67       19.44               153,393       1.94       1.94       1.67       1.67       9.62       197  
  N/A       N/A       14.32       21.95       21.57               148,170       2.64       2.64       2.10       2.10       10.75       33  
                       
$   N/A     $ N/A     $ 25.17     $ 26.85       30.30           $ 378,706       2.94     2.94     1.72     1.72     9.57     28
  N/A       N/A       22.59       23.00       7.87               338,292       2.63       2.63       1.73       1.73       9.99       16  
  N/A       N/A       25.94       24.20       0.22               388,353       2.43     2.43     1.79     1.79     8.93     14  
  N/A       N/A       28.38       27.26       4.39               424,632       2.01       2.01       1.65       1.65       9.44       175  
  N/A       N/A       28.67       28.90       6.81               426,561       1.93       1.93       1.66       1.66       10.03       65  
  N/A       N/A       27.86       29.85       26.98               411,976       2.29       2.29       1.86       1.86       10.38       57  
                       
$ N/A     $ N/A     $ 7.75     $ 10.19       17.12           $ 329,673       1.52     1.52     0.97     0.97     8.94     8
  N/A       N/A       7.89       9.61       24.14               332,051       1.27       1.27       0.96       0.96       9.43       39  
  N/A       N/A       8.58       8.69       (5.81             357,692       1.16     1.16     0.96     0.96     8.58     17  
  N/A       N/A       8.57       9.65       5.92               355,942       1.18       1.18       0.98       0.98       10.01       90  
  N/A       N/A       9.24       10.12       (4.58             379,762       1.39       1.39       1.00       1.00       10.48       208  
  N/A       N/A       9.66       11.84       12.21               392,317       1.55       1.55       1.00       1.00       11.14       293  
                       
$ N/A     $ N/A     $ 22.91     $ 22.32       32.10           $ 3,144,154       3.80     3.80     2.09     2.09     7.41     32
  N/A       N/A       20.43       19.13       6.69               2,804,003       3.20       3.20       2.03       2.03       9.63       26  
  N/A       N/A       23.00       20.18       2.23               3,155,689       2.63     2.63     1.97     1.97     6.71     31  
  N/A       (0.00 )^      22.83       20.65       2.68               3,132,146       2.36       2.36       1.91       1.91       7.29       35  
  N/A       (0.01     24.04       22.48       (2.79             3,298,673       1.52     1.52     1.42     1.42     6.06     76  
                       
$   0.08     $ 0.00 ^    $   28.32     $   30.18       27.07           $   1,372,674       4.08     4.08     2.14     2.14     9.58     20
  N/A       N/A       26.56       27.57       13.75               1,222,499       3.60       3.60       2.12       2.12       13.67       13  
  N/A       N/A       31.38       29.21       2.87               1,426,891       2.83     2.83     2.01     2.01     10.23     5  
  N/A       N/A       30.74       29.00       9.04               1,397,987       3.12       3.12       2.12       2.12       9.98       10  
  N/A       N/A       32.11       30.32       9.62               1,458,961       3.15       3.15       2.17       2.17       11.90       18  
  N/A         (0.03     30.69       31.10       35.21               1,393,099       2.91     2.91     2.04     2.04     12.04     16  

 

  ANNUAL REPORT   JUNE 30, 2017   17


Statements of Assets and Liabilities

 

June 30, 2017

 

(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*

  $ 183,505     $ 153,842     $ 579,240     $ 917,690  

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    94       894       476       697  

Over the counter

    0       328       743       618  

Cash

    1       3       516       0  

Deposits with counterparty

    1,408       23,207       7,340       579  

Receivable for investments sold

    8,369       2,934       18,127       1,099  

Receivable for mortgage dollar rolls

    0       0       0       496,724  

Interest and/or dividends receivable

    835       1,422       3,544       2,989  

Other assets

    1       1       1       2  

Total Assets

    194,213       182,631       609,987       1,420,398  

Liabilities:

       

Borrowings & Other Financing Transactions

                               

Payable for reverse repurchase agreements

  $ 73,354     $ 56,076     $ 212,123     $ 84,359  

Payable for sale-buyback transactions

    0       0       0       37,170  

Payable for mortgage dollar rolls

    0       0       0       496,724  

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    151       1,152       567       86  

Over the counter

    1,811       1,688       5,136       2,864  

Payable for investments purchased

    394       2,014       9,516       3,821  

Payable for investments purchased on a delayed-delivery basis

    0       4       12       10  

Payable for TBA investments purchased

    0       0       0       461,766  

Deposits from counterparty

    0       260       141       302  

Distributions payable to common shareholders

    925       1,569       2,859       3,063  

Overdraft due to custodian

    2       143       354       17  

Accrued management fees

    144       173       540       277  

Other liabilities

    30       14       33       266  

Total Liabilities

    76,811       63,093       231,281         1,090,725  

Net Assets

  $ 117,402     $ 119,538     $   378,706     $ 329,673  

Net Asset Consist of:

       

Shares:

                               

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

  $ 0     $ 0     $ 0     $ 0  

Paid in capital in excess of par

    112,052       142,045       344,027       353,084  

Undistributed (overdistributed) net investment income

    1,113         (2,155     (2,777     (3,133

Accumulated undistributed net realized gain (loss)

    (4,892     (30,076     (8,475     (38,832

Net unrealized appreciation (depreciation)

    9,129       9,724       45,931       18,554  

Net Assets Applicable to Common Shareholders

  $ 117,402     $   119,538     $ 378,706     $ 329,673  

Common Shares Issued and Outstanding

    11,563       10,694       15,045       42,535  

Net Asset Value Per Common Share

  $ 10.15     $ 11.18     $ 25.17     $ 7.75  

Cost of investments in securities

  $   174,541     $ 143,735     $ 536,038     $ 907,061  

Cost or premiums of financial derivative instruments, net

  $ (2,041   $ (1,509   $ (4,955   $ (2,276

* Includes repurchase agreements of:

  $ 5,317     $ 15,999     $ 32,499     $ 13,129  

 

 

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, 2017

 

(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*

  $ 5,467,274     $
2,520,402
 

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    3,612       1,291  

Over the counter

    3,966       1,429  

Cash

    12,594       1,311  

Deposits with counterparty

    107,709       19,920  

Receivable for investments sold

    314,976       51,149  

Receivable for Fund shares sold

    0       841  

Interest and/or dividends receivable

    25,603       12,292  

Other assets

    8       250  

Total Assets

    5,935,742       2,608,885  

Liabilities:

   

Borrowings & Other Financing Transactions

               

Payable for reverse repurchase agreements

  $ 2,580,482     $ 1,137,401  

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    5,173       1,676  

Over the counter

    27,111       19,217  

Payable for investments purchased

    130,474       53,152  

Payable for investments purchased on a delayed-delivery basis

    100       44  

Deposits from counterparty

    10,472       6,844  

Distributions payable to common shareholders

    22,513       10,617  

Overdraft due to custodian

    9,365       4,359  

Accrued management fees

    5,685       2,486  

Other liabilities

    213       415  

Total Liabilities

    2,791,588       1,236,211  

Net Assets

  $ 3,144,154     $ 1,372,674  

Net Asset Consist of:

   

Shares:

               

Par value ($0.00001 per share)

  $ 1     $ 0  

Paid in capital in excess of par

    3,274,390       1,170,856  

Undistributed (overdistributed) net investment income

    (10,953     (5,329

Accumulated undistributed net realized gain (loss)

    (164,458     (20,044

Net unrealized appreciation (depreciation)

    45,174       227,191  

Net Assets Applicable to Common Shareholders

  $ 3,144,154     $ 1,372,674  

Common Shares Issued and Outstanding

    137,221       48,460  

Net Asset Value Per Common Share

  $ 22.91     $ 28.32  

Cost of investments in securities

  $   5,330,504     $   2,283,949  

Cost or premiums of financial derivative instruments, net

  $ (16,484   $ (33,326

* Includes repurchase agreements of:

  $ 142,200     $ 136,982  

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2017   19


Statements of Operations

 

Year Ended June 30, 2017                        
(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*

  $ 14,822     $ 15,731     $ 43,711     $ 34,451  

Dividends

    5       62       1,084       15  

Miscellaneous income

    2       0       0       6  

Total Income

    14,829       15,793       44,795       34,472  

Expenses:

       

Management fees

    1,757       2,045       6,078       3,144  

Trustee fees and related expenses

    22       18       62       60  

Interest expense

    1,745       1,464       4,372       1,808  

Miscellaneous expense

    1       13       9       0  

Total Expenses

    3,525       3,540       10,521       5,012  

Net Investment Income (Loss)

    11,304       12,253       34,274       29,460  

Net Realized Gain (Loss):

       

Investments in securities

    (445     3,426       3,582       2,395  

Exchange-traded or centrally cleared financial derivative instruments

    80       9,275       (2,714     (1,760

Over the counter financial derivative instruments

    76       10,065       3,588       2,127  

Foreign currency

    0       29       (17     128  

Net Realized Gain (Loss)

    (289     22,795       4,439       2,890  

Net Change in Unrealized Appreciation (Depreciation):

       

Investments in securities

    10,906       3,158       37,288         (15,808

Exchange-traded or centrally cleared financial derivative instruments

    (145     (3,044     5,639       17,334  

Over the counter financial derivative instruments

    182       13       (1,897     (1,111

Foreign currency assets and liabilities

    0       (704     (1,627     (37

Net Change in Unrealized Appreciation (Depreciation)

    10,943       (577     39,403       378  

Net Increase (Decrease) in Net Assets Resulting from Operations

  $   21,958     $   34,471     $   78,116     $ 32,728  

* 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, 2017            
(Amounts in thousands)   PIMCO
Dynamic
Credit and
Mortgage
Income Fund
    PIMCO
Dynamic
Income Fund
 

Investment Income:

   

Interest, net of foreign taxes*

  $ 334,318     $ 172,595  

Dividends

    1,337       93  

Total Income

    335,655       172,688  

Expenses:

   

Management fees

    62,050       26,759  

Trustee fees and related expenses

    478       220  

Interest expense

    51,259       24,551  

Miscellaneous expense

    103       36  

Total Expenses

    113,890       51,566  

Net Investment Income (Loss)

    221,765       121,122  

Net Realized Gain (Loss):

   

Investments in securities

    35,796       375  

Exchange-traded or centrally cleared financial derivative instruments

    98,699       16,555  

Over the counter financial derivative instruments

    17,204       11,823  

Foreign currency

    1,409       2,919  

Net Realized Gain (Loss)

    153,108       31,672  

Net Change in Unrealized Appreciation (Depreciation):

   

Investments in securities

    465,468       135,753  

Exchange-traded or centrally cleared financial derivative instruments

    (92,065     (8,051 )  

Over the counter financial derivative instruments

    (18,910     (6,374

Foreign currency assets and liabilities

    (32,610     (3,029

Net Change in Unrealized Appreciation (Depreciation)

    321,883       118,299  

Net Increase (Decrease) in Net Assets Resulting from Operations

  $   696,756     $   271,093  

* Foreign tax withholdings

  $ 12     $ 0  

 

 

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

 

  ANNUAL REPORT   JUNE 30, 2017   21


Statements of Changes in Net Assets

 

    PCM Fund, Inc.     PIMCO Global StocksPLUS® &
Income Fund
 
(Amounts in thousands)   Year Ended
June 30, 2017
    Year Ended
June 30, 2016
    Year Ended
June 30, 2017
    Year Ended
June 30, 2016
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 11,304     $ 14,041     $ 12,253     $ 12,107  

Net realized gain (loss)

    (289     4,847       22,795       (4,285

Net change in unrealized appreciation (depreciation)

    10,943       (18,989     (577     (18,012

Net Increase (Decrease) in Net Assets Resulting from Operations

    21,958       (101     34,471       (10,190

Distributions to Common Shareholders:

       

From net investment income

    (16,862     (11,077     (17,812     (21,340

From net realized capital gains

    0       0       0       0  

Tax basis return of capital

    0       0       (2,117     (1,918

Total Distributions to Common Shareholders(a)

    (16,862     (11,077     (19,929     (23,258

Common Share Transactions**:

       

Issued as reinvestment of distributions

    207       42       1,369       1,607  

Total Increase (Decrease) in Net Assets

    5,303       (11,136     15,911       (31,841

Net Assets Applicable to Common Shareholders:

       

Beginning of year

    112,099       123,235       103,627       135,468  

End of year*

  $   117,402     $   112,099     $   119,538     $   103,627  

* Including undistributed (overdistributed) net investment income of:

  $ 1,113     $ 4,244     $ (2,155   $ (2,326

** Common Share Transactions:

       

Shares issued as reinvestment of distributions

    21       4       80       96  

 

 

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

(a) 

The tax characterization of distributions is determined in accordance with federal income tax regulations. See Note 2, Distributions—Common Shares, in the Notes to Financial Statements for more information.

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

    
PIMCO Income Opportunity Fund
    PIMCO Strategic Income Fund, Inc.  
Year Ended
June 30, 2017
    Year Ended
June 30, 2016
    Year Ended
June 30, 2017
    Year Ended
June 30, 2016
 
     
     
$ 34,274     $ 34,942     $ 29,460     $ 31,977  
  4,439       5,713       2,890       (14,799
  39,403       (49,146     378       (4,489
  78,116       (8,491     32,728       12,689  
     
  (38,429     (34,129     (33,902     (41,907
  0       (7,634     0       0  
  (899     0       (5,051     0  
  (39,328     (41,763     (38,953     (41,907
     
  1,626       193       3,847       3,577  
  40,414       (50,061     (2,378     (25,641
     
  338,292       388,353       332,051       357,692  
$   378,706     $   338,292     $   329,673     $   332,051  
$ (2,777   $ (4,500   $ (3,133   $ (1,926
     
  68       9       419       416  

 

  ANNUAL REPORT   JUNE 30, 2017   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, 2017
    Year Ended
June 30, 2016
    Year Ended
June 30, 2017
    Year Ended
June 30, 2016
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 221,765     $ 276,227     $ 121,122     $ 176,980  

Net realized gain (loss)

    153,108       (88,323     31,672       (197

Net change in unrealized appreciation (depreciation)

    321,883       (240,018