N-CSR

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: 811-08216

PIMCO Strategic Income Fund, Inc.

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

Trent W. Walker

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, 2018

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

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


Item 1.

Reports to Shareholders.

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


LOGO

 

PIMCO Closed-End Funds

 

 

Annual Report

 

June 30, 2018

 

 

 

PCM Fund, Inc. | PCM | NYSE

PIMCO Global StocksPLUS® & Income Fund | PGP | NYSE

PIMCO Income Opportunity Fund | PKO | NYSE

PIMCO Strategic Income Fund, Inc. | RCS | NYSE

PIMCO Dynamic Credit and Mortgage Income Fund | PCI | NYSE

PIMCO Dynamic Income Fund | PDI | NYSE


Table of Contents

 

            Page  
     

Letter from the Chairman of the Board & President

        2  

Important Information About the Funds

        4  

Financial Highlights

        18  

Statements of Assets and Liabilities

        20  

Consolidated Statements of Assets and Liabilities

        21  

Statements of Operations

        22  

Consolidated Statements of Operations

        23  

Statements of Changes in Net Assets

        24  

Consolidated Statements of Changes in Net Assets

        26  

Statements of Cash Flows

        27  

Consolidated Statements of Cash Flows

        28  

Notes to Financial Statements

        105  

Report of Independent Registered Public Accounting Firm

        130  

Glossary

        131  

Federal Income Tax Information

        132  

Shareholder Meeting Results

        133  

Changes to Boards of Trustees/Changes to Portfolio Managers

        135  

Dividend Reinvestment Plan

        136  

Management of the Funds

        138  

Approval of Investment Management Agreement

        141  

Privacy Policy

        147  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PCM Fund, Inc.

     11        29  

PIMCO Global StocksPLUS® & Income Fund

     12        38  

PIMCO Income Opportunity Fund

     13        50  

PIMCO Strategic Income Fund, Inc.

     14        63  

PIMCO Dynamic Credit and Mortgage Income Fund(1)

     15        74  

PIMCO Dynamic Income Fund(1)

     16        91  

 

  (1)  

Consolidated Schedule of Investments


Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

Following is the PIMCO Closed-End Funds Annual Report, which covers the 12-month reporting period ended June 30, 2018. On the subsequent pages you will find specific details regarding investment results and a discussion of factors that most affected performance over the reporting period.

 

For the 12-month reporting period ended June 30, 2018

 

The U.S. economy continued to expand during the reporting period. Looking back, U.S. gross domestic product (GDP) expanded at a revised annual pace of 2.8% and 2.3% during the third and fourth quarters of 2017, respectively. First-quarter 2018 GDP then moderated to a revised annual pace of 2.2%. The Commerce Department’s initial reading — released after the reporting period had ended — showed that second-quarter 2018 GDP grew at an annual pace of 4.1%.

 

The Federal Reserve (Fed) continued to normalize monetary policy during the reporting period. After raising interest rates in March and June 2017, the Fed again raised rates in December, moving the federal funds rate up to a range between 1.25% and 1.50%. And, in October 2017, the Fed started to reduce its balance sheet. At its March 2018 meeting, the Fed again increased rates to a range between 1.50% and 1.75%. Finally, at its meeting that concluded on June 13, 2018, the Fed raised rates to a range between 1.75% and 2.00%.

 

Economic activity outside the U.S. initially accelerated during the reporting period, but then moderated somewhat as the reporting period progressed. Against this backdrop, the European Central Bank (ECB) and Bank of Japan largely maintained their highly accommodative monetary policies. Other central banks took a more hawkish stance. In November 2017, the Bank of England instituted its first rate hike since 2007, and the Bank of Canada raised rates twice during the reporting period. Meanwhile, in June 2018, the ECB indicated that it plans to end its quantitative easing program by the end of the year, but it did not expect to raise interest rates “at least through the summer of 2019.”

 

The U.S. Treasury yield curve flattened during the reporting period, as short-term rates moved up more than their longer-term counterparts. The increase in rates at the short end of the yield curve was mostly due to Fed interest rate hikes. The yield on the benchmark 10-year U.S. Treasury note was 2.85% at the end of the reporting period, up from 2.31% on June 30, 2017. U.S. Treasuries, as measured by the Bloomberg Barclays U.S. Treasury Index, returned -0.65% over the 12 months ended June 30, 2018. Meanwhile, the Bloomberg Barclays U.S. Aggregate Bond Index, a widely used index of U.S. investment grade bonds, returned -0.40% over the period. Riskier fixed income asset classes, including high yield corporate bonds and emerging market debt, generated mixed results versus the broad U.S. market. The ICE BofAML U.S. High Yield Index gained 2.53% over the reporting period, whereas emerging market external debt, as represented by the JPMorgan Emerging Markets Bond Index (EMBI) Global, returned -2.45% over the reporting period. Emerging market local bonds, as represented by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged), returned -2.33% over the period.

 

Global equities generally rose over the first seven months of the period. This rally was driven by a number of factors, including improving global growth, corporate profits that often exceeded expectations and, in the U.S., optimism surrounding the passage of a tax reform bill in December 2017. In the U.S., a portion of those gains were given back in February and March 2018. This was partially due to concerns over less accommodative central bank policies and fears of a trade war. However, U.S. equities then rallied over the last three months of the reporting period. All told, U.S. equities, as represented by the S&P 500 Index, returned 14.37% during the reporting period. Emerging market equities, as measured by the MSCI Emerging Markets Index, returned 8.20% over the period, whereas global equities, as represented by the MSCI World Index, returned 11.09%. Elsewhere, Japanese equities, as represented by the Nikkei 225 Index (in JPY), returned 13.45% over the reporting period and European equities, as represented by the MSCI Europe Index (in EUR), returned 2.85%.

 

2   PIMCO CLOSED-END FUNDS     


Commodity prices fluctuated but generally moved higher during the 12 months ended June 30, 2018. When the reporting period began, crude oil was approximately $46 a barrel. By the end of the period, it was roughly $74 a barrel. This ascent was driven in part by planned and observed production cuts by OPEC and the collapse in Venezuelan oil production, as well as global growth maintaining demand. Elsewhere, gold and copper prices moved modestly higher over the reporting period.

 

Finally, during the reporting period, there were periods of volatility in the foreign exchange markets, due in part to signs of improving global growth, decoupling central bank policies, and a number of geopolitical events. The U.S. dollar generally weakened against other major currencies over the reporting period. For example, the U.S. dollar returned -2.26%, -1.40% and -1.45% versus the euro, British pound and Japanese yen, respectively, during the 12 months ended June 30, 2018.

 

Thank you for the assets you have placed with us. We deeply value your trust, and will continue to work diligently to meet your broad investment needs. For any questions regarding your PIMCO Closed-End Funds investments, please contact your financial adviser, or call the Funds’ shareholder servicing agent at (844) 33-PIMCO. We also invite you to visit our website at pimco.com to learn more about our global viewpoints.

 

Sincerely,

 

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

 

Past performance is no guarantee of future results.

 

  ANNUAL REPORT   JUNE 30, 2018   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 may trend upward, rising rates would negatively impact the performance of most bond funds, and fixed-income securities and other instruments 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). In addition, changes in interest rates can be sudden and unpredictable, and there is no guarantee that Fund management will anticipate such movement accurately. A Fund may lose money as a result of movement in interest rates.

 

As of the date of this report, interest rates in the U.S. and many parts of the world, including certain European countries, are at or near historically low levels. As such, bond funds may currently face an increased exposure to the risks associated with a rising interest rate environment. This is especially true as the Fed ended its quantitative easing program in October 2014 and has begun, and may continue, to raise interest rates. 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 bond markets have steadily grown over the past three decades, dealer inventories of corporate bonds are near historic lows in relation to market size. As a result, there has been a significant reduction in the ability of dealers to “make markets.” Bond funds and individual bonds with a longer duration (a measure used to determine 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. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets or negatively impact a Fund’s performance or cause a Fund to incur losses.

 

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, leverage risk, management risk and the risk that a Fund may not be able to close out a position when it would be most advantageous to do so. Changes in regulation relating to a Fund’s use of derivatives and related instruments could potentially limit or impact a Fund’s ability to invest in derivatives, limit a Fund’s ability to employ certain strategies that use derivatives and/or adversely affect the value or performance of derivatives and the Fund. 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 an asset, instrument or component of the index underlying 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 the derivative instrument. A Fund may invest a significant portion of its assets in these types of instruments. If it does, a Fund’s investment exposure could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not own.

 

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

 

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

 

 

4   PIMCO CLOSED-END FUNDS     


 

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 including certain derivative strategies may generate current, distributable income, even if such strategies could potentially result in declines in a Fund’s net asset value. A Fund’s income and gain-generating strategies, including certain derivatives 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. Moreover, to make payments of interest and other loan costs, a Fund may be forced to sell portfolio securities when it is not otherwise advantageous to do so.

 

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. Investing in foreign (non-U.S.) securities may entail risk due to foreign (non-U.S.) economic and

 

 

  ANNUAL REPORT   JUNE 30, 2018   5


Important Information About the Funds (Cont.)

 

political developments; this risk may be increased when investing in emerging markets. For example, if a Fund invests in emerging market debt, it may face increased exposure to interest rate, liquidity, volatility, and redemption risk due to the specific economic, political, geographical, or legal background of the foreign (non-U.S.) issuer.

 

The geographical classification of foreign (non-U.S.) securities in this report are classified by the country of incorporation of a holding. In certain instances, a security’s country of incorporation may be different from its country of economic exposure. The United States presidential administration’s enforcement of tariffs on goods from other countries, with a focus on China, has contributed to international trade tensions and may impact portfolio securities.

 

Investments in loans (including whole 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, 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.

 

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 instruments, which may be referred to as subordinate mortgage-backed or asset-backed instruments and interest-only mortgage-backed or asset-backed instruments. Subordinate mortgage-backed or asset-backed instruments 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 instruments will not be fully paid. There are multiple tranches of mortgage-backed and asset-backed instruments, 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 instrument 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 instruments will be subject to risks arising from delinquencies and foreclosures, thereby exposing its investment portfolio to potential losses. Subordinate

 

 

6   PIMCO CLOSED-END FUNDS     


 

securities of mortgage-backed and other asset-backed instruments are also subject to greater credit risk than those mortgage-backed or other asset-backed securities that are more highly rated.

 

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 markets for lower-rated bonds. Thus, high yield investments increase the chance that a Fund will lose money. PIMCO does not rely solely on credit ratings, and develops its own analysis of issuer credit quality. A Fund may purchase unrated securities (which are not rated by a rating agency) if PIMCO determines that the security is of comparable quality to a rated security that a Fund may purchase. Unrated securities may be less liquid than comparable rated securities and involve the risk that PIMCO may not accurately evaluate the security’s comparative credit quality, which could result in a Fund’s portfolio having a higher level of credit and/or high yield risk than PIMCO has estimated or desires for the Fund, and could negatively impact the Fund’s performance and/or returns. Certain Funds may invest a substantial portion of their assets in unrated securities and therefore may be particularly subject to the associated risks. Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher-quality debt obligations. To the extent that a Fund invests in high yield and/or unrated securities, the Fund’s success in achieving its investment objectives may depend more heavily on the portfolio manager’s creditworthiness analysis than if the Fund invested exclusively in higher-quality and rated securities. 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. Sales 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.

 

Contingent convertible securities (“CoCos”) are a form of hybrid debt security issued primarily by non-U.S. issuers, which have loss absorption mechanisms built into their terms. CoCos have no stated maturity, have fully discretionary coupons and are typically issued in the form of subordinated debt instruments. CoCos generally either convert into equity of the issuer or have their principal written down upon the occurrence of certain triggering events (“triggers”) linked to regulatory capital thresholds or regulatory actions relating to the issuer’s continued viability. As a result, an investment by a Fund in CoCos is subject to the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund. In certain scenarios, investors in CoCos may suffer a loss of capital ahead of equity holders or when equity holders do not. There is no guarantee that a Fund will receive a return of principal on CoCos. Any indication that an automatic write-down or conversion event may occur can be expected to have an adverse effect on the market price of CoCos. CoCos are often rated below investment grade and are subject to the risks of high yield securities. Because CoCos are issued primarily by financial institutions, CoCos may present substantially increased risks at times of financial turmoil, which could affect financial institutions more than companies in other sectors and industries. Further, the value of an investment in CoCos is unpredictable and will be influenced by many factors and risks, including interest rate risk, credit risk, market risk and liquidity risk. An investment by a Fund in CoCos may result in losses to the Fund.

 

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 countries in Europe to the brink of default and many other economies into recession and weakened the banking and financial sectors of many European

 

 

  ANNUAL REPORT   JUNE 30, 2018   7


Important Information About the Funds (Cont.)

 

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.

 

Certain Funds may make investments in debt instruments and other securities directly or through one or more direct or indirect fully owned subsidiaries formed by the Fund (each, a “Subsidiary”). Each Subsidiary may invest, for example, in whole loans or in shares, certificates, notes or other securities representing the right to receive principal and interest payments due on fractions of whole loans or pools of whole loans, or any other security or other instrument that the Fund may hold directly. References herein to a Fund include references to a Subsidiary in respect of the Fund’s investment exposure. The allocation of a Fund’s portfolio in a Subsidiary will vary over time and might not always include all of the different types of investments described herein. By investing through its Subsidiaries, certain Funds are exposed to the risks associated with the Subsidiaries’ investments. The Subsidiaries are not registered as investment companies under the 1940 Act and are not subject to all of the investor protections of the 1940 Act, although each Subsidiary is managed pursuant to the compliance policies and procedures of the Fund applicable to it. Changes in the laws of the United States and/or the jurisdiction in which a Subsidiary is organized could result in the inability of certain Funds and/or their Subsidiaries to operate as described in this report and could adversely affect the Funds.

 

Certain Funds may acquire residential mortgage loans and unsecured consumer loans through a Subsidiary. Subsidiaries directly holding a beneficial interest in loans will be formed as domestic common law or statutory trusts with a federally chartered bank serving as trustee. Each

such Subsidiary will hold the beneficial interests of loans and the federally chartered bank acting as trustee will hold legal title to the loans for the benefit of the Subsidiary and/or the trust’s beneficial owners (i.e., a Fund or its Subsidiary). State licensing laws typically exempt federally chartered banks from their licensing requirements, and federally chartered banks may also benefit from federal preemption of state laws, including any licensing requirements. The use of common law or statutory trusts with a federally chartered bank serving as trustee is intended to address any state licensing requirements that may be applicable to purchasers or holders of loans, including state licensing requirements related to foreclosure. The Funds believe that such Subsidiaries will not be treated as associations or publicly traded partnerships taxable as corporations for U.S. federal income tax purposes, and that therefore, the Subsidiaries will not be subject to U.S. federal income tax at the subsidiary level. Investments in residential mortgage loans or unsecured consumer loans through entities that are not so treated can potentially be limited by a Fund’s intention to qualify as a regulated investment company, and limit the Fund’s ability to qualify as such.

 

If a Fund or its Subsidiary is required to be licensed in any particular jurisdiction in order to acquire, hold, dispose or foreclose loans, obtaining the required license may not be viable (because, for example, it is not possible or practical) and the Fund or its Subsidiary may be unable to restructure its holdings to address the licensing requirement. In that case, a Fund or its Subsidiary may be forced to cease activities involving the affected loans, or may be forced to sell such loans. If a state regulator or court were to determine that a Fund or its Subsidiary acquired, held or foreclosed a loan without a required state license, the Fund or its Subsidiary could be subject to penalties or other sanctions, prohibited or restricted in its ability to enforce its rights under the loan, or subject to litigation risk or other losses or damages.

 

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

 

 

8   PIMCO CLOSED-END FUNDS     


 

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 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 they 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, contingent convertible securities risk, high yield 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,

 

 

  ANNUAL REPORT   JUNE 30, 2018   9


Important Information About the Funds (Cont.)

 

securities lending risk, zero-coupon bond and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk and convertible securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this Report.

 

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

 

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

 

Fund Name         Commencement
of Operations
    Diversification
Status
 

PCM Fund, Inc.

      09/02/93       Diversified  

PIMCO Global StocksPLUS® & Income Fund

      05/31/05       Diversified  

PIMCO Income Opportunity Fund

      11/30/07       Diversified  

PIMCO Strategic Income Fund, Inc.

      02/24/94       Diversified  

PIMCO Dynamic Credit and Mortgage Income Fund

      01/31/13       Diversified  

PIMCO Dynamic Income Fund

      05/30/12       Diversified  

 

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

 

The Trustees/Directors1 are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with the Investment Manager and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s original or any subsequent prospectus or Statement of Additional Information (SAI), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings from or on behalf of a Fund creates a contract between or among any 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, 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 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.

 

The SEC adopted a rule that generally allows funds to deliver shareholder reports to investors by providing access to such reports online free of charge and by mailing a notice that the report is electronically available. Pursuant to the rule, investors may still elect to receive a complete shareholder report in the mail. PIMCO is evaluating how to make the electronic delivery option available to shareholders in the future.

 

 

 

1 

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

 

10   PIMCO CLOSED-END FUNDS     


PCM Fund, Inc.

 

  Symbol on NYSE -  PCM

 

Allocation Breakdown as of 06/30/2018†§

 

Asset-Backed Securities

    44.9%  

Non-Agency Mortgage-Backed Securities

    32.8%  

Corporate Bonds & Notes

    8.0%  

Short-Term Instruments

    4.2%  

U.S. Government Agencies

    3.4%  

Loan Participations and Assignments

    3.3%  

Real Estate Investment Trusts

    1.2%  

Preferred Securities

    1.1%  

Other

    1.1%  
    

% 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, 2018)(1)

 

Market Price

    $11.45  

NAV

    $10.23  

Premium/(Discount) to NAV

    11.93%  

Market Price Distribution Rate(2)

    8.38%  

NAV Distribution Rate(2)

    9.38%  

Total Effective Leverage(3)

    39%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(09/02/93)
 
Market Price     11.48%       10.62%       13.72%       9.26%  
NAV     10.85%       9.06%       12.91%       9.33%  

 

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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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 are a secondary objective of the Fund.

 

Fund Insights at NAV

 

The following affected performance during the reporting period:

 

»  

Exposure to non-agency residential mortgage-backed securities contributed to absolute performance, as spreads tightened during the period.

 

»  

Exposure to the U.S. dollar contributed to absolute performance, as the dollar appreciated against most major currencies.

 

»  

Exposure to non-agency commercial mortgage-backed securities contributed to absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to select asset-backed securities (“ABS”), specifically student loan ABS, contributed to absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to the intermediate portion of the U.S. yield curve detracted from absolute performance, as rates increased during the period.

 

»  

Exposure to a select gaming and entertainment company detracted from absolute performance.

 

  ANNUAL REPORT   JUNE 30, 2018   11


PIMCO Global StocksPLUS® & Income Fund

 

  Symbol on NYSE -  PGP

 

Allocation Breakdown as of 06/30/2018§

 

Corporate Bonds & Notes

    28.1%  

Non-Agency Mortgage-Backed Securities

    23.6%  

U.S. Government Agencies

    22.3%  

Asset-Backed Securities

    6.6%  

Short-Term Instruments

    6.1%  

Sovereign Issues

    3.0%  

Loan Participations and Assignments

    2.9%  

Preferred Securities

    1.9%  

Common Stocks

    1.7%  

Real Estate Investment Trusts

    1.5%  

Municipal Bonds & Notes

    1.4%  

Other

    0.9%  
    

% 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, 2018)(1)

 

Market Price

    $14.98  

NAV

    $10.50  

Premium/(Discount) to NAV

    42.67%  

Market Price Distribution Rate(2)

    9.77%  

NAV Distribution Rate(2)

    13.94%  

Total Effective Leverage(3)

    24%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(05/31/05)
 
Market Price     (8.96)%       3.95%       12.12%       10.22%  
NAV     8.53%       12.23%       14.10%       12.45%  

 

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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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, as the S&P 500 Index returned 14.37%.

 

»  

The Fund’s exposure to equity index derivatives linked to the MSCI EAFE Index contributed to absolute returns, as the MSCI EAFE Index returned 6.84%.

 

»  

A defensive options strategy involving written calls and purchased puts on the S&P 500 Index detracted from absolute performance, as the S&P 500 Index returned 14.37% during the period.

 

»  

U.S. duration strategies detracted from performance, as U.S. Treasury yields increased.

 

»  

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

 

»  

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

 

12   PIMCO CLOSED-END FUNDS     


PIMCO Income Opportunity Fund

 

  Symbol on NYSE -  PKO

 

Allocation Breakdown as of 06/30/2018§

 

Corporate Bonds & Notes

    29.6%  

Asset-Backed Securities

    26.6%  

Non-Agency Mortgage-Backed Securities

    26.3%  

Loan Participations and Assignments

    3.3%  

Sovereign Issues

    2.7%  

Short-Term Instruments

    2.3%  

U.S. Government Agencies

    2.3%  

Convertible Preferred Securities

    2.3%  

Common Stocks

    1.5%  

Real Estate Investments Trusts

    1.3%  

Other

    1.8%  
    

% 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, 2018)(1)

 

Market Price

    $27.31  

NAV

    $25.06  

Premium/(Discount) to NAV

    8.98%  

Market Price Distribution Rate(2)

    8.35%  

NAV Distribution Rate(2)

    9.10%  

Total Effective Leverage(3)

    35%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(11/30/07)
 
Market Price     11.13%       11.16%       14.42%       12.76%  
NAV     8.91%       9.42%       13.38%       12.34%  

 

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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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 contributed to absolute performance, as spreads tightened during the period.

 

»  

Exposure to high yield corporate debt securities contributed to absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to the U.S. dollar contributed to absolute performance, as the dollar appreciated against most major currencies.

 

»  

Exposure to a select energy company contributed to absolute performance.

 

»  

Exposure to the intermediate portion of the U.S. yield curve detracted from absolute performance, as U.S. interest rates increased during the period.

 

»  

Exposure to Argentine debt and currency detracted from absolute performance.

 

  ANNUAL REPORT   JUNE 30, 2018   13


PIMCO Strategic Income Fund, Inc.

 

  Symbol on NYSE -  RCS

 

Allocation Breakdown as of 06/30/2018§

 

U.S. Government Agencies

    70.1%  

Non-Agency Mortgage-Backed Securities

    10.0%  

Corporate Bonds & Notes

    7.1%  

Asset-Backed Securities

    5.5%  

U.S. Treasury Obligations

    4.9%  

Sovereign Issues

    1.0%  

Short-Term Instruments

    0.4%  

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, 2018)(1)

 

Market Price

    $9.68  

NAV

    $7.32  

Premium/(Discount) to NAV

    32.24%  

Market Price Distribution Rate(2)

    8.93%  

NAV Distribution Rate(2)

    11.80%  

Total Effective Leverage(3)

    29%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(02/24/94)
 
Market Price     4.59%       9.43%       12.44%       9.45%  
NAV     5.78%       7.21%       11.48%       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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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 contributed to absolute performance, as spreads tightened during the period.

 

»  

Exposure to the U.S. dollar contributed to absolute performance, as the dollar appreciated against most major currencies.

 

»  

Exposure to non-agency commercial mortgage-backed securities contributed to absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to asset-backed securities (“ABS”), specifically student loan ABS, contributed to absolute performance, as the asset class outperformed like-duration Treasuries during the period.

 

»  

Exposure to the intermediate portion of the U.S. yield curve detracted from absolute performance, as U.S. interest rates increased during the period.

 

»  

Exposure to agency mortgage-backed securities detracted from absolute performance, as the asset class underperformed like-duration Treasuries during the period.

 

»  

Exposure to Argentine debt and currency detracted from absolute performance.

 

14   PIMCO CLOSED-END FUNDS     


PIMCO Dynamic Credit and Mortgage Income Fund

 

  Symbol on NYSE -  PCI

 

Allocation Breakdown as of 06/30/2018§

 

Asset-Backed Securities

    35.9%  

Non-Agency Mortgage-Backed Securities

    28.0%  

Corporate Bonds & Notes

    21.1%  

Loan Participations and Assignments

    3.8%  

U.S. Government Agencies

    2.9%  

Short-Term Instruments

    2.3%  

Sovereign Issues

    2.2%  

Common Stocks

    1.3%  

Other

    2.5%  
    

% 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, 2018)(1)

 

Market Price

    $23.57  

NAV

    $23.74  

Premium/(Discount) to NAV

    (0.72)%  

Market Price Distribution Rate(2)

    8.35%  

NAV Distribution Rate(2)

    8.29%  

Total Effective Leverage(3)

    45%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     Commencement
of Operations
(01/31/13)
 
Market Price     15.03%       12.09%       9.75%  
NAV     12.64%       10.86%       10.19%  

 

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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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 benefited absolute performance, as spreads tightened during the period.

 

»  

Exposure to non-agency commercial mortgage-backed securities benefited absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to the U.S. dollar benefited absolute performance, as the dollar appreciated against most major currencies.

 

»  

Exposure to high yield corporate debt securities benefited absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to the intermediate portion of the U.S. yield curve detracted from absolute performance, as rates rose during the period.

 

»  

Exposure to Argentine debt and currency detracted from absolute performance.

 

  ANNUAL REPORT   JUNE 30, 2018   15


PIMCO Dynamic Income Fund

 

  Symbol on NYSE -  PDI

 

Allocation Breakdown as of 06/30/2018§

 

Non-Agency Mortgage-Backed Securities

    41.5%  

Asset-Backed Securities

    25.9%  

Corporate Bonds & Notes

    17.7%  

Short-Term Instruments

    4.5%  

Loan Participations and Assignments

    3.5%  

U.S. Government Agencies

    2.9%  

Sovereign Issues

    1.9%  

Common Stocks

    1.0%  

Other

    1.1%  
    

% 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, 2018)(1)

 

Market Price

    $31.87  

NAV

    $28.98  

Premium/(Discount) to NAV

    9.97%  

Market Price Distribution Rate(2)

    8.30%  

NAV Distribution Rate(2)

    9.13%  

Total Effective Leverage(3)

    41%  

 

 

 

Average Annual Total Return(1) for the period ended June 30, 2018  
    1 Year     5 Year     Commencement
of Operations
(05/30/12)
 
Market Price     15.54%       16.49%       18.04%  
NAV     12.16%       13.22%       17.28%  

 

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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates 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 benefited absolute performance, as spreads tightened during the period.

 

»  

Exposure to the U.S. dollar benefited absolute performance, as the dollar appreciated against most major currencies.

 

»  

Exposure to non-agency commercial mortgage-backed securities benefited performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to high yield corporate debt securities benefited absolute performance, as the asset class outperformed like-duration Treasuries.

 

»  

Exposure to the intermediate portion of the U.S. yield curve detracted from absolute performance, as U.S. interest rates increased during the period.

 

»  

Exposure to Argentine debt and currency detracted from absolute performance.

 

16   PIMCO CLOSED-END FUNDS     


 

 

 

(THIS PAGE INTENTIONALLY LEFT BLANK)

 

  ANNUAL REPORT   JUNE 30, 2018   17


Financial Highlights

 

          Investment Operations           Less Distributions(b)  
                                                       
Selected Per Share Data for the Year or Period Ended^:   Net Asset
Value
Beginning
of Year
or Period
    Net
Investment
Income(a)
    Net
Realized/
Unrealized
Gain (Loss)
    Total            From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total  

PCM Fund, Inc.

                 

06/30/2018

  $ 10.15     $ 0.88     $ 0.18     $ 1.06             $ (0.98   $ 0.00     $ 0.00     $ (0.98

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

PIMCO Global StocksPLUS® & Income Fund

                 

06/30/2018

  $ 11.18     $ 1.09     $ (0.16   $ 0.93             $ (1.43   $ 0.00     $ (0.18   $ (1.61

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

PIMCO Income Opportunity Fund

                 

06/30/2018

  $ 25.17     $ 2.18     $ (0.01   $ 2.17             $ (2.28   $ 0.00     $ 0.00     $ (2.28

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

PIMCO Strategic Income Fund, Inc.

                 

06/30/2018

  $ 7.75     $ 0.77     $ (0.34   $ 0.43             $ (0.86   $ 0.00     $ 0.00     $ (0.86

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

PIMCO Dynamic Credit and Mortgage Income Fund (Consolidated)

                 

06/30/2018

  $   22.91     $   1.95     $ 0.85     $ 2.80             $ (1.97   $ 0.00     $ 0.00     $ (1.97

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)

                 

06/30/2018

  $   28.32     $   2.95     $ 0.18     $   3.13             $   (2.65   $ 0.00     $   0.00     $   (2.65

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 )(i) 

03/31/2015

    32.11       3.25       (0.49     2.76               (4.13     0.00       0.00       (4.13

03/31/2014

    30.69       3.70       1.24       4.94               (3.29     (0.23     0.00       (3.52

 

^

A zero balance may reflect actual amounts rounding to less than $0.01 or 0.01%.

*

Annualized

(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.

 

18   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     $ 10.23     $ 11.45       11.48           $ 118,512       3.06     3.06     1.43     1.43     8.55     9
  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     $ 10.50     $ 14.98       (8.96 )%            $ 113,204       2.36     2.36     1.48     1.48     9.84     63
  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     $ 25.06     $ 27.31       11.13           $ 379,378       2.99     2.99     1.64     1.64     8.58     17
  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     $ 7.32     $ 9.68       4.59           $ 314,540       1.85     1.85     0.97     0.97     10.12     5
  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     $   23.74     $   23.57       15.03           $   3,257,195       4.20     4.20     2.10     2.10     8.30     22
  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  
                       
$   0.18     $   (0.00   $   28.98     $   31.87       15.54           $   1,575,523       4.07     4.07     2.01     2.01     10.26     9
  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  

 

  ANNUAL REPORT   JUNE 30, 2018   19


Statements of Assets and Liabilities

 

June 30, 2018

 

(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*

  $ 181,173     $ 171,105     $ 540,360     $ 1,205,767  

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    25       513       168       318  

Over the counter

    0       2,260       646       615  

Cash

    1       0       48       1,550  

Deposits with counterparty

    1,772       4,391       10,368       12,711  

Foreign currency, at value

    0       411       1,731       678  

Receivable for investments sold

    2,905       679       11,151       1,341  

Receivable for mortgage dollar rolls

    0       0       0       552,805  

Receivable for TBA investments sold

    0       8,495       0       0  

Interest and/or dividends receivable

    860       1,578       4,640       3,274  

Other assets

    11       1       85       2  

Total Assets

    186,747       189,433       569,197       1,779,061  

Liabilities:

       

Borrowings & Other Financing Transactions

                               

Payable for reverse repurchase agreements

  $ 62,464     $ 27,001     $ 172,762     $ 103,189  

Payable for sale-buyback transactions

    0       0       0       47,982  

Payable for mortgage dollar rolls

    0       0       0       552,805  

Financial Derivative Instruments

                               

Exchange-traded or centrally cleared

    67       246       327       57  

Over the counter

    1,050       918       2,352       1,995  

Payable for investments purchased

    1,193       1,123       3,289       2,629  

Payable for TBA investments purchased

    0       41,183       0       747,867  

Payable for unfunded loan commitments

    2,260       2,676       6,252       198  

Deposits from counterparty

    133       1,462       1,446       4,101  

Distributions payable to common shareholders

    926       1,315       2,877       3,095  

Overdraft due to custodian

    0       168       0       0  

Accrued management fees

    139       135       504       255  

Other liabilities

    3       2       10       348  

Total Liabilities

    68,235       76,229       189,819       1,464,521  

Net Assets

  $ 118,512     $ 113,204     $ 379,378     $ 314,540  

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

    110,813       135,810       346,449       357,111  

Undistributed (overdistributed) net investment income

    1,275       (1,570     (1,068     (3,145

Accumulated undistributed net realized gain (loss)

    (897     (23,572     (5,343     (28,045

Net unrealized appreciation (depreciation)

    7,321       2,536       39,340       (11,381

Net Assets Applicable to Common Shareholders

  $   118,512     $   113,204     $   379,378     $   314,540  

Common Shares Outstanding

    11,580       10,779       15,140       42,986  

Net Asset Value Per Common Share

  $ 10.23     $ 10.50     $ 25.06     $ 7.32  

Cost of investments in securities

  $ 170,932     $ 167,223     $ 502,160     $   1,225,058  

Cost of foreign currency held

  $ 0     $ 418     $ 1,749     $ 704  

Cost or premiums of financial derivative instruments, net

  $ (29   $ 9,625     $ (8,332   $ 8,407  

* Includes repurchase agreements of:

  $ 6,388     $ 10,183     $ 6,163     $ 1,992  

 

  

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

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Consolidated Statements of Assets and Liabilities

 

June 30, 2018

 

(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*

  $ 5,649,102     $ 2,608,673  

Investments in Affiliates

    10,856       0  

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    1,464       408  

Over the counter

    14,782       3,982  

Cash

    797       0  

Deposits with counterparty

    119,446       25,606  

Foreign currency, at value

    8,423       2,997  

Receivable for investments sold

    104,809       6,263  

Receivable for Fund shares sold

    0       683  

Interest and/or dividends receivable

    38,160       15,318  

Other assets

    8       186  

Total Assets

    5,947,847       2,664,116  

Liabilities:

   

Borrowings & Other Financing Transactions

               

Payable for reverse repurchase agreements

  $ 2,489,155     $ 995,864  

Financial Derivative Instruments

               

Exchange-traded or centrally cleared

    2,373       604  

Over the counter

    24,966       13,729  

Payable for investments purchased

    92,627       27,641  

Payable for unfunded loan commitments

    34,835       32,252  

Deposits from counterparty

    18,421       4,050  

Distributions payable to common shareholders

    22,513       11,892  

Overdraft due to custodian

    0       9  

Accrued management fees

    5,707       2,523  

Other liabilities

    55       29  

Total Liabilities

    2,690,652       1,088,593  

Net Assets

  $ 3,257,195     $ 1,575,523  

Net Asset Consist of:

   

Shares:

               

Par value ($0.00001 per share)

  $ 1     $ 1  

Paid in capital in excess of par

    3,274,390       1,350,728  

Undistributed (overdistributed) net investment income

    11,191       18,239  

Accumulated undistributed net realized gain (loss)

    (174,421     (27,685

Net unrealized appreciation (depreciation)

    146,034       234,240  

Net Assets Applicable to Common Shareholders

  $   3,257,195     $   1,575,523  

Common Shares Outstanding

    137,221       54,361  

Net Asset Value Per Common Share

  $ 23.74     $ 28.98  

Cost of investments in securities

  $ 5,430,022     $ 2,367,356  

Cost of Investments in Affiliates

  $ 7,639     $ 0  

Cost of foreign currency held

  $ 8,565     $ 3,109  

Cost or premiums of financial derivative instruments, net

  $ (2,621   $ (46,412

* Includes repurchase agreements of:

  $ 97,864     $ 97,512  

 

  

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

 

  ANNUAL REPORT   JUNE 30, 2018   21


Statements of Operations

 

Year Ended June 30, 2018                        
(Amounts in thousands)   PCM Fund,
Inc.
    PIMCO
Global
StocksPLUS® &
Income
Fund
    PIMCO
Income
Opportunity
Fund
    PIMCO
Strategic
Income Fund,
Inc.
 

Investment Income:

       

Interest

  $ 13,753     $ 14,395     $ 43,196     $ 38,843  

Dividends

    45       152       1,111       23  

Total Income

    13,798       14,547       44,307       38,866  

Expenses:

       

Management fees

    1,689       1,742       6,211       3,102  

Trustee fees and related expenses

    14       14       46       42  

Interest expense

    1,936       1,055       5,174       2,843  

Miscellaneous expense

    1       9       24       5  

Total Expenses

    3,640       2,820       11,455       5,992  

Net Investment Income (Loss)

    10,158         11,727       32,852       32,874  

Net Realized Gain (Loss):

       

Investments in securities

    806       (50     4,737       1,644  

Exchange-traded or centrally cleared financial derivative instruments

    2,823       3,269       687       12,230  

Over the counter financial derivative instruments

    293       1,877       871       1,065  

Short sales

    (1     (1     (1     (2

Foreign currency

    0       85       116       (104

Net Realized Gain (Loss)

    3,921       5,180       6,410       14,833  

Net Change in Unrealized Appreciation (Depreciation):

       

Investments in securities

    1,277       (6,226     (5,003     (29,921

Exchange-traded or centrally cleared financial derivative instruments

    (3,634     (3,836     (4,364     (804

Over the counter financial derivative instruments

    546       2,578       2,062       851  

Foreign currency assets and liabilities

    3       296       714       (61

Net Change in Unrealized Appreciation (Depreciation)

    (1,808     (7,188     (6,591       (29,935

Net Increase (Decrease) in Net Assets Resulting from Operations

  $   12,271     $ 9,719     $   32,671     $ 17,772  

 

  

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

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Consolidated Statements of Operations

 

Year Ended June 30, 2018            
(Amounts in thousands)   PIMCO
Dynamic
Credit and
Mortgage
Income Fund
    PIMCO
Dynamic
Income Fund
 

Investment Income:

   

Interest

  $   401,067     $   208,675  

Dividends

    2,736       610  

Total Income

    403,803       209,285  

Expenses:

   

Management fees

    67,185       29,060  

Trustee fees and related expenses

    420       172  

Interest expense

    67,907       30,150  

Miscellaneous expense

    238       78  

Total Expenses

    135,750       59,460  

Net Investment Income (Loss)

    268,053       149,825  

Net Realized Gain (Loss):

   

Investments in securities

    44,337       (733

Exchange-traded or centrally cleared financial derivative instruments

    (36,458     (1,001

Over the counter financial derivative instruments

    2,240       1,534  

Short sales

    (55     (7

Foreign currency

    4,219       501  

Net Realized Gain (Loss)

    14,283       294  

Net Change in Unrealized Appreciation (Depreciation):

   

Investments in securities

    82,311       4,864  

Investments in Affiliates

    3,216       0  

Exchange-traded or centrally cleared financial derivative instruments

    (8,012     (6,189

Over the counter financial derivative instruments

    11,665       6,393  

Foreign currency assets and liabilities

    11,680       1,981  

Net Change in Unrealized Appreciation (Depreciation)

    100,860       7,049  

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ 383,196     $ 157,168  

 

  

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

 

  ANNUAL REPORT   JUNE 30, 2018   23


Statements of Changes in Net Assets

 

    PCM Fund, Inc.     PIMCO
Global StocksPLUS® &
Income Fund
 
(Amounts in thousands)   Year Ended
June 30, 2018
    Year Ended
June 30, 2017
    Year Ended
June 30, 2018
    Year Ended
June 30, 2017
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 10,158     $ 11,304     $ 11,727     $ 12,253  

Net realized gain (loss)

    3,921       (289     5,180       22,795  

Net change in unrealized appreciation (depreciation)

    (1,808     10,943       (7,188     (577

Net Increase (Decrease) in Net Assets Resulting from Operations

    12,271       21,958       9,719       34,471  

Distributions to Common Shareholders:

       

From net investment income

    (11,341     (16,862     (15,394     (17,812

Tax basis return of capital

    0       0       (1,915     (2,117

Total Distributions to Common Shareholders(a)

    (11,341     (16,862     (17,309     (19,929

Common Share Transactions**:

       

Issued as reinvestment of distributions

    180       207       1,256       1,369  

Total increase (decrease) in Net Assets

    1,110       5,303       (6,334     15,911  

Net Assets Applicable to Common Shareholders:

       

Beginning of year

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

End of year*

  $   118,512     $   117,402     $   113,204     $   119,538  

* Including undistributed (overdistributed) net investment income of:

  $ 1,275     $ 1,113     $ (1,570   $ (2,155

** Common Share Transactions:

       

Shares issued as reinvestment of distributions

    17       21       85       80  

 

  

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.

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

    
PIMCO
Income Opportunity Fund
    PIMCO
Strategic Income Fund, Inc.
 
Year Ended
June 30, 2018
    Year Ended
June 30, 2017
    Year Ended
June 30, 2018
    Year Ended
June 30, 2017
 
     
     
$ 32,852     $ 34,274     $ 32,874     $ 29,460  
  6,410       4,439