The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair
value and categorized within Level 3 at December 31, 2013.
The net change in unrealized appreciation/depreciation of Level 3 investments held at December 31, 2013,
was $55,087. Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statement of Operations.
The effect of derivatives on the Statement of Assets and Liabilities at December 31, 2013:
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair
value and categorized within Level 3 at December 31, 2013.
The net change in unrealized appreciation/depreciation of Level 3 investments held at December 31, 2013,
was $840,444. Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statement of Operations.
The effect of derivatives on the Statement of Assets and Liabilities at December 31, 2013:
Statements of Assets and Liabilities
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCM Fund, Inc.
|
|
|
|
|
Dynamic Credit*
Income
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at value (cost-$164,557,622 and $4,412,374,581, respectively)
|
|
|
|
|
$188,227,348
|
|
|
|
|
|
$4,472,874,031
|
|
Foreign currency, at value (cost-$0 and $160,345, respectively)
|
|
|
|
|
|
|
|
|
|
|
161,056
|
|
Unsettled reverse repurchase agreements
|
|
|
|
|
561,000
|
|
|
|
|
|
114,591,000
|
|
Deposits with brokers for swaps collateral
|
|
|
|
|
|
|
|
|
|
|
55,250,000
|
|
Interest and dividends receivable
|
|
|
|
|
1,178,348
|
|
|
|
|
|
47,972,602
|
|
Receivable for investments sold
|
|
|
|
|
|
|
|
|
|
|
41,848,242
|
|
Deposits with brokers for futures contracts collateral
|
|
|
|
|
|
|
|
|
|
|
5,770,000
|
|
Unrealized appreciation of OTC swaps
|
|
|
|
|
3,082,610
|
|
|
|
|
|
588,308
|
|
Unrealized appreciation of forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
3,134,740
|
|
Receivable for variation margin on centrally cleared swaps
|
|
|
|
|
|
|
|
|
|
|
1,114,204
|
|
Receivable for variation margin on futures contracts
|
|
|
|
|
|
|
|
|
|
|
579,396
|
|
Tax reclaims receivable
|
|
|
|
|
|
|
|
|
|
|
238,856
|
|
Receivable from broker
|
|
|
|
|
26,130
|
|
|
|
|
|
|
|
Unrealized appreciation of unfunded loan committments
|
|
|
|
|
|
|
|
|
|
|
24,596
|
|
Receivable for principal paydowns
|
|
|
|
|
|
|
|
|
|
|
2,153
|
|
Deposits with brokers for reverse repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
1,420,000
|
|
Prepaid expenses
|
|
|
|
|
5,261
|
|
|
|
|
|
47,936
|
|
Total Assets
|
|
|
|
|
193,080,697
|
|
|
|
|
|
4,745,617,120
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable for investments purchased
|
|
|
|
|
502
|
|
|
|
|
|
46,249,058
|
|
Payable for reverse repurchase agreements
|
|
|
|
|
56,067,000
|
|
|
|
|
|
1,309,206,437
|
|
Payable to custodian for cash overdraft
|
|
|
|
|
4,608
|
|
|
|
|
|
41,836
|
|
Payable to brokers for cash collateral received
|
|
|
|
|
260,000
|
|
|
|
|
|
240,000
|
|
Payable for variation margin on centrally cleared swaps
|
|
|
|
|
|
|
|
|
|
|
4,881,968
|
|
Payable for terminated swaps
|
|
|
|
|
8,781
|
|
|
|
|
|
|
|
Dividends payable
|
|
|
|
|
2,475,752
|
|
|
|
|
|
71,466,263
|
|
Unrealized depreciation of forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
8,900,234
|
|
Swap premiums received
|
|
|
|
|
5,211,520
|
|
|
|
|
|
15,070
|
|
Investment management fees payable
|
|
|
|
|
129,272
|
|
|
|
|
|
4,420,806
|
|
Interest payable for reverse repurchase agreements
|
|
|
|
|
78,933
|
|
|
|
|
|
995,873
|
|
Interest payable for cash collateral received
|
|
|
|
|
2
|
|
|
|
|
|
8,351
|
|
Accrued expenses
|
|
|
|
|
172,522
|
|
|
|
|
|
517,898
|
|
Total Liabilities
|
|
|
|
|
64,408,892
|
|
|
|
|
|
1,446,943,794
|
|
Net Assets
|
|
|
|
|
$128,671,805
|
|
|
|
|
|
$3,298,673,326
|
|
|
|
|
|
|
Composition of Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock/Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value ($0.001 per common stock and $0.00001 per share, respectively)
|
|
|
|
|
$11,515
|
|
|
|
|
|
$1,372
|
|
Paid-in-capital in excess of par
|
|
|
|
|
143,644,042
|
|
|
|
|
|
3,274,248,501
|
|
Undistributed (dividends in excess of) net investment income
|
|
|
|
|
14,754
|
|
|
|
|
|
(13,703,546)
|
|
Accumulated net realized gain (loss)
|
|
|
|
|
(41,750,842)
|
|
|
|
|
|
7,489,193
|
|
Net unrealized appreciation
|
|
|
|
|
26,752,336
|
|
|
|
|
|
30,637,806
|
|
Net Assets
|
|
|
|
|
$128,671,805
|
|
|
|
|
|
$3,298,673,326
|
|
Common Stock/Shares Issued and Outstanding
|
|
|
|
|
11,515,125
|
|
|
|
|
|
137,221,372
|
|
Net Asset Value Per Common Stock/Share
|
|
|
|
|
$11.17
|
|
|
|
|
|
$24.04
|
|
* Consolidated For PIMCO Dynamic Credit Income
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
|
|
| December 31, 2013 |
|
|
Annual Report
|
|
|
43
|
|
Statements of Operations
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Period or Year ended December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCM Fund, Inc.
|
|
|
|
|
Dynamic Credit
Income*
a
|
|
Investment Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
$15,564,977
|
|
|
|
|
|
$219,526,184
|
|
Dividends
|
|
|
|
|
776
|
|
|
|
|
|
2,552,625
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
6,461,580
|
|
Total Investment Income
|
|
|
|
|
15,565,753
|
|
|
|
|
|
228,540,389
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management
|
|
|
|
|
1,701,380
|
|
|
|
|
|
41,246,804
|
|
Interest
|
|
|
|
|
703,126
|
|
|
|
|
|
3,229,562
|
|
Audit and tax services
|
|
|
|
|
81,879
|
|
|
|
|
|
95,960
|
|
Legal
|
|
|
|
|
64,079
|
|
|
|
|
|
151,253
|
|
Custodian and accounting agent
|
|
|
|
|
47,792
|
|
|
|
|
|
523,784
|
|
Stockholder/Shareholder communications
|
|
|
|
|
46,447
|
|
|
|
|
|
273,812
|
|
Transfer agent
|
|
|
|
|
25,028
|
|
|
|
|
|
23,029
|
|
New York Stock Exchange listing
|
|
|
|
|
21,326
|
|
|
|
|
|
100,316
|
|
Directors/Trustees
|
|
|
|
|
7,670
|
|
|
|
|
|
193,805
|
|
Insurance
|
|
|
|
|
6,274
|
|
|
|
|
|
22,309
|
|
Miscellaneous
|
|
|
|
|
1,875
|
|
|
|
|
|
64,226
|
|
Total Expenses
|
|
|
|
|
2,706,876
|
|
|
|
|
|
45,924,860
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
|
12,858,877
|
|
|
|
|
|
182,615,529
|
|
|
|
|
|
|
Realized and Change in Unrealized Gain (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
(301,797)
|
|
|
|
|
|
(20,944,103)
|
|
Futures contracts
|
|
|
|
|
|
|
|
|
|
|
1,406,596
|
|
Swaps
|
|
|
|
|
526,242
|
|
|
|
|
|
108,260,209
|
|
Foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
(13,144,868)
|
|
Net change in unrealized appreciation/depreciation of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
(3,168,053)
|
|
|
|
|
|
60,499,450
|
|
Futures contracts
|
|
|
|
|
|
|
|
|
|
|
3,493,651
|
|
Swaps
|
|
|
|
|
666,548
|
|
|
|
|
|
(23,686,830)
|
|
Unfunded loan commitments
|
|
|
|
|
|
|
|
|
|
|
24,596
|
|
Foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
(9,693,061)
|
|
Net Realized and Change in Unrealized Gain (Loss)
|
|
|
|
|
(2,277,060)
|
|
|
|
|
|
106,215,640
|
|
Net Increase in Net Assets Resulting from Investment Operations
|
|
|
|
|
$10,581,817
|
|
|
|
|
|
$288,831,169
|
|
* For the period January 31, 2013 (commencement of operations) through December 31, 2013.
a
|
|
Consolidated for PIMCO Dynamic Credit Income.
|
|
|
|
|
|
|
|
|
44
|
|
Annual Report
|
|
| December 31, 2013 |
|
|
See accompanying Notes to Financial Statements
|
Statements of Changes in Net Assets
PCM Fund, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2013
|
|
|
|
|
Year ended
December 31, 2012
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
$12,858,877
|
|
|
|
|
|
$12,164,228
|
|
Net realized gain (loss)
|
|
|
|
|
224,445
|
|
|
|
|
|
(1,435,262)
|
|
Net change in unrealized appreciation/depreciation
|
|
|
|
|
(2,501,505)
|
|
|
|
|
|
23,497,440
|
|
Net increase in net assets resulting from investment operations
|
|
|
|
|
10,581,817
|
|
|
|
|
|
34,226,406
|
|
|
|
|
|
|
Dividends to Stockholders from Net Investment Income
|
|
|
|
|
(12,601,663)
|
|
|
|
|
|
(12,809,055)
|
|
|
|
|
|
|
Capital Stock Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinvestment of dividends
|
|
|
|
|
230,526
|
|
|
|
|
|
233,480
|
|
Total increase (decrease) in net assets
|
|
|
|
|
(1,789,320)
|
|
|
|
|
|
21,650,831
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
130,461,125
|
|
|
|
|
|
108,810,294
|
|
End of year*
|
|
|
|
|
$128,671,805
|
|
|
|
|
|
$130,461,125
|
|
*Including undistributed (dividends in excess of) net investment income of:
|
|
|
|
|
$14,754
|
|
|
|
|
|
$(249,112)
|
|
Common Stock Issued in Reinvestment of Dividends
|
|
|
|
|
19,696
|
|
|
|
|
|
21,592
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
|
|
| December 31, 2013 |
|
|
Annual Report
|
|
|
45
|
|
Consolidated Statement of Changes in Net Assets
PIMCO Dynamic Credit Income Fund
|
|
|
|
|
|
|
|
|
|
|
For the Period
January 31, 2013**
through
December 31, 2013
|
|
Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
$182,615,529
|
|
Net realized gain
|
|
|
|
|
75,577,834
|
|
Net unrealized appreciation/depreciation
|
|
|
|
|
30,637,806
|
|
Net increase in net assets resulting from investment operations
|
|
|
|
|
288,831,169
|
|
|
|
|
Dividends and Distributions to Shareholders from:
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(230,872,977)
|
|
Net realized gains
|
|
|
|
|
(33,558,859)
|
|
Total dividends and distributions to shareholders
|
|
|
|
|
(264,431,836)
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
Net proceeds from the sale of shares
|
|
|
|
|
3,275,757,438
|
|
Offering costs charged to paid-in capital in excess of par
|
|
|
|
|
(1,895,440)
|
|
Reinvestment of dividends and distributions
|
|
|
|
|
311,983
|
|
Net increase in net assets from share transactions
|
|
|
|
|
3,274,173,981
|
|
Total increase in net assets
|
|
|
|
|
3,298,573,314
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
Beginning of period
|
|
|
|
|
100,012
|
|
End of period*
|
|
|
|
|
$3,298,673,326
|
|
*Including dividends in excess of net investment income of:
|
|
|
|
|
$(13,703,546)
|
|
|
|
|
Shares Issued and Reinvested:
|
|
|
|
|
|
|
Issued
|
|
|
|
|
137,204,500
|
|
Issued in Reinvestment of Dividends and Distributions
|
|
|
|
|
12,683
|
|
Net Increase
|
|
|
|
|
137,217,183
|
|
** Commencement of operations.
|
|
|
|
|
|
|
46
|
|
Annual Report
|
|
| December 31, 2013 |
|
|
See accompanying Notes to Financial Statements
|
Statements of Cash Flows
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Period or Year ended December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCM Fund, Inc.
|
|
|
|
|
Dynamic Credit
Income*
|
|
Increase (Decrease) in Cash and Foreign Currency from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows provided by (used for) Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
|
|
|
$10,581,817
|
|
|
|
|
|
$288,831,169
|
|
|
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets Resulting from Investment Operations to Net Cash provided by (used for) Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of long-term investments
|
|
|
|
|
(11,962,847)
|
|
|
|
|
|
(7,248,943,818)
|
|
Proceeds from sales of long-term investments
|
|
|
|
|
42,591,680
|
|
|
|
|
|
2,942,419,502
|
|
(Purchases) sales of short-term portfolio investments, net
|
|
|
|
|
3,246,289
|
|
|
|
|
|
(129,433,007)
|
|
Net change in unrealized appreciation/depreciation
|
|
|
|
|
2,501,505
|
|
|
|
|
|
(30,637,806)
|
|
Net realized gain
|
|
|
|
|
(224,445)
|
|
|
|
|
|
(75,577,834)
|
|
Net amortization/accretion on investments
|
|
|
|
|
(878,378)
|
|
|
|
|
|
2,638,639
|
|
Increase in receivable for investments sold
|
|
|
|
|
|
|
|
|
|
|
(41,848,242)
|
|
(Increase) decrease in interest and dividends receivable
|
|
|
|
|
234,265
|
|
|
|
|
|
(47,972,602)
|
|
Increase in tax reclaims receivable
|
|
|
|
|
|
|
|
|
|
|
(238,856)
|
|
Increase in receivable for principal paydown
|
|
|
|
|
|
|
|
|
|
|
(2,153)
|
|
Proceeds from futures contracts transactions
|
|
|
|
|
|
|
|
|
|
|
4,320,851
|
|
Increase in deposits with brokers for futures contracts collateral
|
|
|
|
|
|
|
|
|
|
|
(5,770,000)
|
|
Increase in deposits with brokers for swaps collateral
|
|
|
|
|
|
|
|
|
|
|
(55,250,000)
|
|
Increase in deposits with brokers for reverse repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
(1,420,000)
|
|
Increase in receivable from broker
|
|
|
|
|
(2,103)
|
|
|
|
|
|
|
|
Increase in prepaid expenses
|
|
|
|
|
(1,364)
|
|
|
|
|
|
(47,936)
|
|
Increase in payable for investments purchased
|
|
|
|
|
502
|
|
|
|
|
|
46,249,058
|
|
Increase in payable to brokers for cash collateral received
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
Net cash provided by swap transactions
|
|
|
|
|
110,025
|
|
|
|
|
|
87,767,905
|
|
Net cash used for foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
(17,072,435)
|
|
Increase (decrease) in interest payable for reverse repurchase agreements
|
|
|
|
|
(17,711)
|
|
|
|
|
|
995,873
|
|
Increase (decrease) in investment management fees payable
|
|
|
|
|
(24,642)
|
|
|
|
|
|
4,420,806
|
|
Increase in interest payable on cash collateral
|
|
|
|
|
2
|
|
|
|
|
|
8,351
|
|
Increase in accrued expenses
|
|
|
|
|
51,976
|
|
|
|
|
|
517,898
|
|
Net cash provided by (used for) operating activities**
|
|
|
|
|
46,206,571
|
|
|
|
|
|
(4,275,804,637)
|
|
|
|
|
|
|
Cash Flows provided by (used for) Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for reverse repurchase agreements
|
|
|
|
|
(523,214,000)
|
|
|
|
|
|
(5,111,468,032)
|
|
Proceeds on reverse repurchase agreements
|
|
|
|
|
488,096,000
|
|
|
|
|
|
6,420,674,469
|
|
Increase (decrease) in unsettled reverse repurchase agreements
|
|
|
|
|
1,503,000
|
|
|
|
|
|
(114,591,000)
|
|
Cash dividends paid (excluding reinvestment of dividends of $230,526, and $311,983, respectively)
|
|
|
|
|
(12,596,912)
|
|
|
|
|
|
(192,653,590)
|
|
Proceeds from common shares sold
|
|
|
|
|
|
|
|
|
|
|
3,275,757,438
|
|
Offering costs and underwriting discount paid
|
|
|
|
|
|
|
|
|
|
|
(1,895,440)
|
|
Increase in payable to custodian for cash overdraft
|
|
|
|
|
4,608
|
|
|
|
|
|
41,836
|
|
Net cash provided by (used for) financing activities
|
|
|
|
|
(46,207,304)
|
|
|
|
|
|
4,275,865,681
|
|
Net increase (decrease) in cash and foreign currency
|
|
|
|
|
(733)
|
|
|
|
|
|
61,044
|
|
Cash at beginning of period/year
|
|
|
|
|
733
|
|
|
|
|
|
100,012
|
|
Cash and foreign currency, end of period or year
|
|
|
|
|
$
|
|
|
|
|
|
$161,056
|
|
* For the period January 31, 2013 (commencement of operations) through December 31, 2013.
** Cash paid for interest primarily related to participation in reverse repurchase agreement transactions was $720,835, and $2,225,338, respectively.
Consolidated for PIMCO Dynamic Credit Income
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
|
|
| December 31, 2013 |
|
|
Annual Report
|
|
|
47
|
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and
Significant Accounting Policies
PCM Fund, Inc. (PCM) and PIMCO Dynamic Credit
Income Fund (Dynamic Credit Income), (each a Fund and collectively the Funds) commenced operations on September 2, 1993 and January 31, 2013, respectively. Prior to commencing operations, the Funds had
no operations other than matters relating to their organization as non-diversified, closed-end management investment companies registered under the Investment Company Act of 1940 and the rules and regulations thereunder, as amended. Dynamic Credit
Income sold and issued 4,189 shares at an aggregate price of $100,012 to Allianz Asset Management of America L.P. (AAM). PCM is organized as a Maryland corporation. Dynamic Credit Income is organized as a Massachusetts business
trust. Allianz Global Investors Fund Management LLC (the Investment Manager) and Pacific Investment Management Company LLC (PIMCO or the Sub-Adviser) serve as the Funds investment manager and sub-adviser,
respectively, and are indirect, wholly-owned subsidiaries of AAM. AAM is an indirect, whollyowned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. PCM has the authority to issue 300 million shares
of $0.001 par value common stock. Dynamic Credit Income has authorized an unlimited amount of shares with $0.00001 par value.
Dynamic Credit Income issued
121,000,000 shares in its initial public offering. An additional 16,204,500 shares were issued in connection with the underwriters over-allotment option. These shares were all issued at $25.00 per share before an underwriting discount of
$1.125 per share. Offering costs of $1,895,440 (representing approximately $0.01 per share) were offset against the proceeds of the offering and over-allotment option and have been charge to paid-in capital
in excess of par. The Sub-Adviser paid all organizational costs of approximately $25,000.
PCMs primary
investment objective is to achieve high current income. Capital gain from the disposition of investments is a secondary objective of the Fund. Dynamic Credit Incomes primary investment objective is to seek current income. Capital appreciation
is a secondary objective of the Fund. There can be no assurance that the Funds will meet their stated objectives.
The preparation of the Funds financial
statements in accordance with accounting principles generally accepted in the United States of America requires the Funds management to make estimates and assumptions that affect the reported amounts and disclosures in the Funds
financial statements. Actual results could differ from those estimates.
In the normal course of business, the Funds enter into contracts that contain a variety of
representations that provide general indemnifications. The Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred.
The following is a summary of significant accounting policies consistently followed by the Funds:
(a) Valuation of Investments
Portfolio securities and other financial
instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation
reporting system, established market makers, or independent pricing services. The Funds investments are valued daily using prices supplied by an independent pricing
|
|
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48
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|
Annual Report
|
|
| December 31, 2013
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and Significant Accounting Policies (continued)
service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent
pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Centrally cleared swaps and exchange traded futures are valued at
the price determined by the relevant exchange. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement date.
The Board of Directors/Trustees (the Board) has adopted procedures for valuing portfolio securities and other financial instruments in circumstances where
market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Investment Manager and Sub-Adviser. The Funds Valuation Committee was established by the Board to oversee the
implementation of the Funds valuation methods and to make fair value determinations on behalf of the Board, as instructed. The Sub-Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made
in light of market changes, events affecting the issuer, or other factors. If the Sub-Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to
consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the
Valuation Committee.
Benchmark pricing procedures are used as the basis for setting the base price of a fixed-income security and for subsequently adjusting the
price proportionally to market value changes of a pre-determined security deemed to be comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price,
or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Committee. The validity of the fair value
is reviewed by the Sub-Adviser on a periodic basis and may be amended as the availability of market data indicates a material change.
Short-term securities maturing
in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61
st
day prior to maturity, if the original term to
maturity exceeded 60 days.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained
from pricing services. As a result, the net asset value (NAV) of each Funds shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United
States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the New York Stock Exchange (NYSE) is closed.
The prices used by the Funds to value investments may differ from the value that would be realized if the investments were sold, and these differences could be material
to the Funds financial statements. Each Funds NAV is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the NYSE on each day the NYSE is open for business.
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
49
|
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and
Significant Accounting Policies (continued)
(b) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (
i.e.
the exit price) in an orderly
transaction between market participants. The three levels of the fair value hierarchy are described below:
n
|
|
Level 1 quoted prices in active markets for identical investments that the Funds have the ability to access
|
n
|
|
Level 2 valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities,
prepayment speeds, loss severities, credit risks and default rates or other market corroborated inputs
|
n
|
|
Level 3 valuations based on significant unobservable inputs (including the Sub-Advisers or Valuation Committees own assumptions and securities whose price was determined by using a single
brokers quote)
|
The valuation techniques used by the Funds to measure fair value during the period or year ended December 31, 2013 were
intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.
The Funds policy is to recognize transfers between levels at
the end of the reporting period. An investment assets or liabilitys level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to the fair value measurement. The objective
of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used. Investments categorized as Level 1 or 2 as of period
end may have been transferred between
Levels 1 and 2 since the prior period due to changes in the valuation method utilized in valuing the investments.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following are
certain inputs and techniques that the Funds generally use to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with Generally Accepted Accounting Principles (GAAP).
Equity Securities (Common and Preferred Stock) Equity securities traded in inactive markets are valued using inputs which include broker-dealer quotes, recently
executed transactions adjusted for changes in the benchmark index, or evaluated price quotes received from independent pricing services that take into account the integrity of the market sector and issuer, the individual characteristics of the
security, and information received from broker-dealers and other market sources pertaining to the issuer or security. To the extent that these inputs are observable, the values of equity securities are categorized as Level 2. To the extent that
these inputs are unobservable, the values are categorized as Level 3.
U.S. Treasury Obligations U.S. Treasury obligations are valued by independent pricing
services based on pricing models that evaluate the mean between the most recently quoted bid and ask price. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over
comparable U.S. Treasury issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Treasury
obligations are categorized as Level 2. To the
|
|
|
|
|
50
|
|
Annual Report
|
|
| December 31, 2013
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and Significant Accounting Policies (continued)
extent that these inputs are unobservable, the values are categorized as Level 3.
Government Sponsored
Enterprise and Mortgage-Backed Securities Government sponsored enterprise and mortgage-backed securities are valued by independent pricing services using pricing models based on inputs that include issuer type, coupon, cash flows, mortgage
prepayment projection tables and Adjustable Rate Mortgage evaluations that incorporate index data, periodic and life caps and the next coupon reset date. To the extent that these inputs are observable, the values of government sponsored enterprise
and mortgage-backed securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Municipal Bonds
Municipal bonds are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market
movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable, the values of municipal bonds are categorized as Level 2. To the extent that these inputs are
unobservable, the values are categorized as Level 3.
Corporate Bonds & Notes Corporate bonds & notes are generally comprised of two main
categories: investment grade bonds and high yield bonds. Investment grade bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, live trading levels, recently executed
transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and
spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent
pricing services based primarily on broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of
the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of
corporate bonds & notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Asset-Backed
Securities and Collateralized Mortgage Obligations Asset-backed securities and collateralized mortgage obligations are valued by independent pricing services using pricing models based on a securitys average life volatility. The models
also take into account tranche characteristics such as coupon, average life, collateral types, ratings, the issuer and tranche type, underlying collateral and performance of the collateral, and discount margin for certain floating rate issues. To
the extent that these inputs are observable, the values of asset-backed securities and collateralized mortgage obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Forward Foreign Currency Contracts Forward foreign currency contracts are valued by independent pricing services using various inputs and techniques, which include
broker-dealer quotations, actual trading information and foreign currency exchange rates gathered from leading market makers and foreign
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
51
|
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and
Significant Accounting Policies (continued)
currency exchange trading centers throughout the world. To the extent that these inputs are observable, the values of forward foreign currency contracts are categorized as Level 2. To the extent
that these inputs are unobservable, the values are categorized as Level 3.
Credit Default Swaps Credit default swaps traded over-the-counter (OTC)
are valued by independent pricing services using pricing models that take into account, among other factors, information received from market makers and broker-dealers, default probabilities from index specific credit spread curves, recovery rates,
and cash flows.
Centrally cleared credit default swaps are valued at the price determined by the relevant exchange. To the extent that these inputs are observable,
the values of credit default swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Interest Rate
Swaps OTC interest rate swaps are valued by independent pricing services using pricing models that are based on real-time intraday snapshots of relevant interest rate curves that are built using the most actively traded securities for a given
maturity. The pricing models also incorporate cash and money market rates. In addition, market data pertaining to interest rate swaps is monitored regularly to ensure that interest rates are properly depicting the current market rate. Centrally
cleared interest rate swaps are valued at the price determined by the relevant exchange. To the extent that these inputs are observable, the values of interest rate swaps are categorized as Level 2. To the extent that these inputs are unobservable,
the values are categorized as Level 3.
Senior Loans Senior Loans are valued by independent pricing services based on the average of quoted prices received
from multiple dealers or valued relative to other benchmark securities when broker-dealer quotes are unavailable. These quoted prices are based on interest rates, yield curves, option adjusted spreads and credit spreads. To the extent that these
inputs are observable, the values of Senior Loans are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
(c) Investment Transactions and Investment Income
Investment transactions are
accounted for on the trade date. Securities purchased and sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on an identified cost basis.
Interest income adjusted for the accretion of discount and amortization of premiums is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income. Dividend income is
recorded on the ex-dividend date. Facility fees and other fees (such as origination fees) received on the settlement date are amortized as income over the expected term of the senior loan. Facility fees and other fees received after the settlement
date relating to senior loans, consent fees relating to corporate actions and commitment fees received relating to unfunded purchase commitments are recorded as miscellaneous income upon receipt. Paydown gains and losses are netted and recorded as
interest income on the Statements of Operations.
(d) Federal Income Taxes
The Funds intend to distribute all of their taxable income and to comply with the other requirements of Subchapter M of the U.S.
|
|
|
|
|
52
|
|
Annual Report
|
|
| December 31, 2013
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and Significant Accounting Policies (continued)
Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required.
Accounting for uncertainty in income taxes establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement
recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. In accordance with provisions set forth under U.S. GAAP, the
Investment Manager has reviewed the Funds tax positions for all open tax years. As of December 31, 2013, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken.
The Funds federal income tax returns for the prior three years, as applicable, remain subject to examination by the Internal Revenue Service.
(e) Dividends
and Distributions
PCM declares dividends from net investment income to stockholders monthly and distributions of net realized capital gains, if any, are paid at
least annually.
Dynamic Credit Income intends to declare monthly distributions from net investment income but may fund a portion of distributions with gains from the
sale of portfolio securities and other sources.
The Funds record dividends and distributions on the ex-dividend date. The amount of dividends from net investment
income and distributions from net realized capital gains is determined in accordance with federal income tax regulations, which may differ from GAAP. These book-tax differences are considered either temporary or permanent in nature. To
the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal income tax treatment; temporary differences do not require
reclassification. To the extent dividends and/or distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as dividends and/or distributions to stockholders/shareholders from return of
capital.
(f) Foreign Currency Translation
Dynamic Credit Incomes
accounting records are maintained in U.S. dollars as follows: (1) the foreign currency market values of investments and other assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the end of
the period; and (2) purchases and sales, income and expenses are translated at the prevailing exchange rate on the respective dates of such transactions. The resulting net foreign currency gain (loss) is included in the Funds Statement of
Operations.
Dynamic Credit Income does not generally isolate that portion of the results of operations arising as a result of changes in foreign currency exchange
rates from the fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realized and unrealized gain (loss) on investments. However, the Fund does isolate the effect of
fluctuations in foreign currency exchange rates when determining the gain (loss) upon the sale or maturity of foreign currency denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign
currency gain (loss) for both financial reporting and income tax reporting purposes.
(g) Senior Loans
The Funds may purchase assignments of, and participations in, Senior Loans originated, negotiated and structured by a U.S. or foreign
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
53
|
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and
Significant Accounting Policies (continued)
commercial bank, insurance company, finance company or other financial institution (the Agent) for a lending syndicate of financial institutions (the Lender). When
purchasing an assignment, the Funds succeed to all the rights and obligations under the loan agreement with the same rights and obligations as the assigning Lender. Assignments may, however, be arranged through private negotiations between potential
assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender. The Funds may also enter into unfunded loan commitments,
which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Funds to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future
obligation in full, even though a percentage of the principal amounts will never be utilized by the borrower.
(h) Repurchase Agreements
The Funds are a party to Master Repurchase Agreements (Master Repo Agreements) with select counterparties. The Master Repo Agreements maintain provisions for
initiation, income payments, events of default, and maintenance of collateral.
The Funds enter into transactions with their custodian bank or securities brokerage
firms whereby they purchase securities under agreements to resell such securities at an agreed upon price and date (repurchase agreements). The Funds, through their custodian, take possession of securities collateralizing the repurchase
agreement. Such agreements are carried at the contract amount in the financial statements, which is considered
to represent fair value. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, is held by the custodian bank for the
benefit of the Funds until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Funds require that the market value of the collateral, including accrued interest thereon, be sufficient in
the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited. At
December 31, 2013, PCM and PCI had investments in repurchase agreements with a gross values of $574,000 and $9,518,000 on the Statements of Assets and Liabilities. The values of the related collateral exceeded the value of the repurchase
agreements at December 31, 2013.
(i) Reverse Repurchase Agreements
In a
reverse repurchase agreement, the Funds sell securities to a bank or broker-dealer and agree to repurchase the securities at a mutually agreed upon date and price. Generally, the effect of such a transaction is that the Funds can recover and
reinvest all or most of the cash invested in portfolio securities involved during the term of the reverse repurchase agreement and still be entitled to the returns associated with those portfolio securities. Such transactions are advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than the returns the Funds obtain on investments purchased with the cash. To the extent the Funds do not cover their positions in reverse repurchase agreements (by segregating
liquid assets at least equal in amount to the forward purchase commitment), the Funds uncovered obligations under the agreements will be subject to the Funds limitations on borrowings. Reverse repurchase agreements involve leverage risk
and also the risk that the
|
|
|
|
|
54
|
|
Annual Report
|
|
| December 31, 2013
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and Significant Accounting Policies (continued)
market value of the securities that the Fund is obligated to repurchase under the agreements may decline below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending determination by the other party, or its trustee or receiver, whether to enforce the Funds
obligation to repurchase the securities.
(j) Equity-Linked Securities
The
Funds may purchase equity-linked securities, also known as participation notes. Participation notes are used to gain exposure to issuers in certain countries with a costly or lengthy registration process. They are generally traded over-the-counter
and constitute general unsecured contractual obligations of the banks or broker-dealers that issue them. Generally, banks and broker-dealers associated with non-U.S.-based brokerage firms buy securities listed on certain foreign exchanges and then
issue participation notes which are designed to replicate the performance of certain issuers and markets. To the extent that the Funds invest in equity-linked securities whose return corresponds to the performance of a foreign securities index or
one or more foreign stocks, investing in equity-linked securities will involve risks similar to the risks of investing in foreign securities. In addition, the Funds bear the risk that the issuer of an equity-linked security may default on its
obligation under the terms of the arrangement with the counterparty.
(k) When-Issued/Delayed-Delivery Transactions
When-issued or delayed-delivery transactions involve a commitment to purchase or sell securities for a predetermined price or yield, with payment and delivery taking
place beyond the customary settlement period. When
delayed-delivery purchases are outstanding, the Funds will set aside and maintain until the settlement date in a designated account, liquid assets in an amount sufficient to meet the purchase
price. When purchasing a security on a delayed-delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations; consequently, such fluctuations are taken into account when
determining the NAV. The Funds may dispose of or renegotiate a
delayed-
delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a
realized gain or loss. When a security is sold on a delayed-delivery basis, the Funds do not participate in future gains and losses with respect to the security.
(l) Sale-Buybacks
A Fund may enter into financing transactions referred to as
sale-buybacks. A sale-buyback transaction consists of a sale of a security by a Fund to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed-upon
price and date. A Fund is not entitled to receive principal and interest payments, if any, made on the security sold to the counterparty during the term of the agreement. The agreed-upon proceeds for securities to be repurchased by a Fund are
reflected as a liability on the Statements of Assets and Liabilities. A Fund will recognize net income represented by the price differential between the price received for the transferred security and the agreed-upon repurchase price. This is
commonly referred to as the price drop. A price drop consists of (i) the foregone interest and inflationary income adjustments, if any, a Fund would have otherwise received had the security not been sold and (ii) the negotiated
financing terms between a Fund and the counterparty. Foregone interest and inflationary income adjustments, if any, are recorded as
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55
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and
Significant Accounting Policies (continued)
components of interest income on the Statements of Operations. Interest payments based upon negotiated financing terms made by a Fund to counterparties are recorded as a component of interest
expense on the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. A Fund will segregate assets determined
to be liquid by the Investment Manager or otherwise cover its obligations under sale-buyback transactions.
(m) Mortgage-Related and Other Asset-Backed Securities
Investments in mortgage-related or other asset-backed securities include mortgage pass-through securities, collateralized mortgage obligations
(CMOs), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (SMBSs) and other securities that directly or indirectly represent a participation in, or are secured by
and payable from, mortgage loans on real property. The value of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities
may expose the Funds to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the markets perception of the creditworthiness of the issuers. The decline in liquidity and prices of
these types of securities may make it more difficult to determine fair market value. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is
no assurance that private guarantors or insurers will meet their obligations.
(n) U.S. Government Agencies or Government-Sponsored Enterprises
Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association
(GNMA or Ginnie Mae), a wholly-owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors not backed by the full faith and credit of the U.S.
Government include the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its
participation certificates are not backed by the full faith and credit of the U.S. Government.
(o) Special Purpose Vehicle
The PCILS I LLC (the PCILS Subsidiary), a Delaware Corporation exempted company, was incorporated as a wholly owned subsidiary acting as an investment vehicle
for the Fund in order to effect certain investments for the Fund consistent with the Fund's investment objectives and policies as specified in its prospectus and statement of additional information. The Fund's investment portfolio has been
consolidated and includes the portfolio holdings of the Fund and the PCILS Subsidiary. The consolidated financial statements include the accounts of the fund and the PCILS Subsidiary. All inter-company transactions and balances have been eliminated.
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56
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
1. Organization and Significant Accounting Policies (continued)
A subscription agreement was entered into between the Fund and the PCILS Subsidiary, comprising the entire issued share capital of the PCILS Subsidiary with the intent that the Fund will remain
the sole shareholder and retain all rights. Under the Articles of Association, shares issued by the PCILS Subsidiary confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the PCILS Subsidiary and
shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the PCILS Subsidiary.
(p) Restricted Securities
The Funds are permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming
negotiations and expenses, and prompt sale at an acceptable price may be difficult.
(q) Interest Expense
Interest expense primarily relates to the Funds participation in reverse repurchase agreement transactions. Interest expense is recorded as it is incurred.
2. Principal Risks
In the normal course of business, the Funds trade financial
instruments and enter into financial transactions where risk of potential loss exists due to, among other things, changes in the market (market risk) or failure of the other party to a transaction to perform (counterparty risk). The Funds are also
exposed to other risks such as, but not limited to, interest rate, foreign currency, credit and leverage risks.
Interest rate risk is the risk that fixed income
securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income
securities held by the Funds are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with
longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income securitys market
price to interest rate (
i.e.
yield) movements.
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 the Funds hold 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.
Mortgage-related and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments.
Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, if a Fund holds mortgage-related
securities, it may exhibit additional volatility. This is known as extension 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
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57
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
2. Principal Risks (continued)
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.
The Funds are exposed to credit risk, which is the risk of losing money
if the issuer or guarantor of a fixed income security is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments,
or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.
To the extent Dynamic
Credit Income directly invests in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies
will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short
periods of time for a number of reasons, including economic growth, inflation, changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International
Monetary Fund, or the imposition of currency controls or other political developments in the United States or abroad. As a result, Dynamic Credit Income investments in foreign currency-denominated securities may reduce the returns of the Fund.
Dynamic Credit Income is subject to elements of risk not typically associated with investments in the U.S., due to concentrated investments in foreign issuers located in
a specific country or region. Such concentrations will subject Dynamic
Credit Income to additional risks resulting from future political or economic conditions in such country or region and the possible imposition of adverse governmental laws or currency exchange
restrictions affecting such country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies.
The market values of securities may decline due to general market conditions (market risk) which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment. They may also decline due to factors that affect a particular industry or industries,
such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities.
The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The
potential loss to the Funds could exceed the value of the financial assets recorded in the Funds financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist principally of cash due from
counterparties and investments. The Sub-Adviser seeks to minimize the Funds counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers
and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail
if either party fails to meet its obligation.
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58
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| December 31, 2013
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
2. Principal Risks (continued)
The Funds are exposed to risks associated with leverage. Leverage may cause the value of the
Funds stock to be more volatile than if the Funds did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds portfolio securities. The Funds may engage in
transactions or purchase instruments that give rise to forms of leverage. Obligations to settle reverse repurchase agreements may be detrimental to the Funds performance. In addition, to the extent the Funds employ leverage, dividend and
interest costs may not be recovered by any appreciation of the securities purchased with the leverage proceeds and could exceed the Funds investment returns, resulting in greater losses.
The Funds hold defaulted securities that may involve special considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the
Funds ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable
price may be difficult and differences compared to the value of the securities used by the Funds could be material. A Fund may incur additional expenses to the extent it is required to seek recovery upon a portfolio securitys default in the
payment of principal or interest. In any bankruptcy proceeding relating to a defaulted investment, a Fund may lose its entire investment or may be required to accept cash or securities with a value substantially less than its original investment.
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements (ISDA Master Agreements) with select counterparties that
govern transactions, over-the-counter derivatives and foreign exchange contracts entered into by the Funds and those
counterparties. The ISDA Master Agreements contain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include
conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements of
the Funds.
The considerations and factors surrounding the settlement of certain purchases and sales made on a delayed-delivery basis are governed by Master
Securities Forward Transaction Agreements (Master Forward Agreements) between Dynamic Credit Income and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation,
payment and transfer, events of default, termination, and maintenance of collateral.
The counterparty risk associated with certain contracts may be reduced by master
netting arrangements to the extent that if an event of default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Funds overall exposure to counterparty risk with respect to transactions subject to master
netting arrangements can change substantially within a short period, as it is affected by each transaction subject to the arrangement.
PCM had security transactions
outstanding with Lehman Brothers entities as the counterparty at the time the relevant Lehman Brothers entity filed for bankruptcy protection or was placed in administration. The security transactions associated with Lehman Brothers, Inc.
(SLH) as counterparty were written down to their estimated recoverable values. Adjustments to anticipated losses for security transactions associated with SLH have been incorporated as
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59
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
2. Principal Risks (continued)
net realized gain (loss) on the Funds Statement of Operations. The remaining balances due from SLH are included in receivable from broker on the Funds Statement of Assets and
Liabilities. The estimated recoverable value of receivables is determined by an independent broker quote.
3. Financial Derivative Instruments
Disclosure about derivatives and hedging activities requires qualitative disclosure regarding objectives and strategies for using derivatives, quantitative disclosure
about fair value amounts of gains and losses on derivatives, and disclosure about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as
hedges, and those that do not qualify for such accounting. Although the Funds at times use derivatives for hedging purposes, the Funds reflect derivatives at fair value and recognize changes in fair value through the Funds
Statements of Operations, and such derivatives do not qualify for hedge accounting treatment.
(a) Futures Contracts
The Funds use futures contracts to manage their exposure to the securities markets or the movements in interest rates and currency values. A futures contract is an
agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract, the Funds are required to pledge to the broker an amount of cash or securities equal to the minimum
initial margin requirements of the exchange. Pursuant to the contracts, the Funds agree to receive from or pay to the broker an amount of cash or securities equal to the daily fluctuation in the value of the contracts. Such receipts or
payments are known as variation margin and are recorded by the Funds as unrealized appreciation or depreciation. When the
contracts are closed, the Funds record a realized gain or loss equal to the difference between the value of the contracts at the time they were opened and the value at the time they were closed.
Any unrealized appreciation or depreciation recorded is simultaneously reversed. The use of futures transactions involves various risks, including the risk of an imperfect correlation in the movements in the price of futures contracts, interest
rates and underlying hedging assets, and possible inability or unwillingness of counterparties to meet the terms of their contracts.
(b) Swap Agreements
Swap agreements are bilaterally negotiated agreements between the Funds and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market
or event-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over-the-counter market (OTC swaps) or may be executed in a multilateral or other trade facility platform, such as a registered
commodities exchange (centrally cleared swaps). The Funds may enter into credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements in order to, among other things, manage their exposure to
credit, currency and interest rate risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the
event of default or bankruptcy/insolvency.
OTC swap payments received or made at the beginning of the measurement period, if any, are reflected as such on the
Funds Statements of Assets and Liabilities and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit
spreads, currency exchange rates,
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60
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| December 31, 2013
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
3. Financial Derivative Instruments (continued)
interest rates, and other relevant factors). These upfront payments are recorded as realized gains or losses on the Funds Statements of Operations upon termination or maturity of the swap.
A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Funds Statements of Operations. Net periodic payments received or paid by the Funds are included as part of realized gains or
losses on the Funds Statements of Operations. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/ depreciation on the Funds Statements of Operations. Daily changes in valuation of
centrally cleared swaps, if any, are recorded as a receivable or payable, as applicable, for variation margin on centrally cleared swaps on the Funds Statements of Assets and Liabilities.
Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized on the
Funds Statements of Assets and Liabilities. Such risks include the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligation to perform or disagree as to the
meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates.
Credit Default Swap Agreements Credit default swap
agreements involve one party (referred to as the buyer of protection) making a stream of payments to another party (the seller of protection) in exchange for the right to receive a specified return in the event of a default or other credit event for
the referenced entity, obligation or index. As the sellers of protection on credit default swap agreements, the Funds will generally receive from the buyer of protection a fixed rate of income throughout
the term of the swap provided that there is no credit event. As the sellers, the Funds would effectively add leverage to their investment portfolios because, in addition to their total net
assets, the Funds would be subject to investment exposure on the notional amount of the swap.
If the Funds are sellers of protection and a credit event occurs, as
defined under the terms of that particular swap agreement, a Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or
underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities
comprising the referenced index. If the Funds are buyers of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Funds will either (i) receive from the seller of protection an amount equal to
the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the
notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are assumed by market makers considering either industry standard recovery rates or entity
specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method,
are used to calculate the settlement value.
Credit default swap agreements on corporate or sovereign issues involve one party making a stream of payments to another
party in
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61
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
3. Financial Derivative
Instruments (continued)
exchange for the right to receive a specified return in the event of a default or other credit event. If a credit event occurs and cash settlement is not elected, a variety of other deliverable
obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protections right to choose the deliverable obligation with the
lowest value following a credit event). The Funds use credit default swaps on corporate or sovereign issues to provide a measure of protection against defaults of the issuers (
i.e.,
to reduce risk where the Funds own or have exposure to the
referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuers default.
Credit default swap
agreements on asset-backed securities involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit events. Unlike credit default swaps on corporate
or sovereign issues, deliverable obligations in most instances would be limited to the specific referenced obligation as performance for asset-backed securities can vary across deals. Prepayments, principal paydowns, and other writedown or loss
events on the underlying mortgage loans will reduce the outstanding principal balance of the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement and the notional amount of the swap
agreement will be adjusted by corresponding amounts. The Funds use credit default swaps on asset-backed securities to provide a measure of protection against defaults of the referenced obligation or to take an active long or short position with
respect to the likelihood of a particular referenced obligations default.
Credit default swap agreements on credit indices involve one party making a stream of
payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index
is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the
credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset backed securities, emerging markets, and/or various credit ratings
within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the
credit event is settled based on that names weight in the index, or in the case of a tranched index credit default swap, the credit event is settled based on the names weight in the index that falls within the tranche for which the Funds
bear exposure. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. The Funds use credit default swaps on credit indices to hedge a portfolio of credit
default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect. Credit-default swaps on indices are benchmarks for protecting investors owning bonds against default, and traders use them
to speculate on changes in credit quality.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap
agreements on corporate or sovereign issues as of period end are
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62
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Annual Report
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
3. Financial Derivative Instruments (continued)
disclosed in the Notes to Schedules of Investments, serve as an indicator of the current status of the payment/performance risk, and represent the likelihood or risk of default for the credit
derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. For credit default swap agreements on
asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Wider credit spreads and increasing market values, in absolute terms when
compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
The maximum potential amount of future payments (undiscounted) that the Funds as sellers of protection could be required to make under a credit default swap agreement
would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of December 31, 2013 for which the Funds are sellers of protection are disclosed in the Notes to Schedules
of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy
protection credit default swap agreements entered into by the Funds for the same referenced entity or entities.
Interest Rate Swap Agreements Interest rate
swap agreements involve the exchange by the Funds with a counterparty of its respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments, with respect to the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate
caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap, (ii) interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall below a specified rate, or floor, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the counterparty may terminate the swap transaction in whole at zero cost by a predetermined date and time prior to
the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can
exchange variable interest rates based on different money markets.
4. Investment Manager/Sub-Adviser
Each Fund has an Investment Management Agreement (each an Agreement) with the Investment Manager. Subject to the supervision of each Funds Board, the
Investment Manager is responsible for managing, either directly or through others selected by it, the Funds investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an
annual fee, payable monthly, at an annual rate of 0.80% and 1.15% of the average daily total managed assets for PCM and Dynamic Credit Income, respectively. Total managed assets refer to the total assets of each Fund (including assets attributable
to any reverse repurchase agreements and borrowings)
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63
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Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
4. Investment Manager/Sub-Adviser (continued)
minus accrued liabilities (other than liabilities representing reverse repurchase agreements and borrowings). For these purposes, borrowings includes amount of leverage attributable
to such instruments as reverse repurchase agreements.
The Investment Manager has retained the Sub-Adviser to manage the Funds investments.
Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Funds investment decisions. The Investment Manager, not the Funds, pays a portion
of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.
5. Investments in Securities
For the period or year ended December 31, 2013, purchases and sales of investments, other than short-term securities were:
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U.S. Government Obligations
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All Other
|
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Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
|
Sales
|
|
PCM
|
|
|
$600,570
|
|
|
|
|
|
|
|
$11,192,816
|
|
|
|
$44,517,897
|
|
Dynamic Credit Income
|
|
|
1,610,659,713
|
|
|
|
$1,504,874,035
|
|
|
|
5,638,233,784
|
|
|
|
1,475,821,777
|
|
6. Income Tax Information
The tax character of
dividends and distributions paid was:
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Year ended December 31, 2013
|
|
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Year ended December 31, 2012
|
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|
Ordinary Income(1)
|
|
|
Ordinary Income(1)
|
|
PCM
|
|
$
|
12,601,663
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|
|
$
|
12,809,055
|
|
Dynamic Credit Income Fund
|
|
|
264,431,836
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(1)
|
|
Includes short-term capital gains, if any.
|
|
At December 31, 2013, the components of distributable earnings were:
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|
|
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|
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Ordinary Income
|
|
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Long-Term
Capital Gains
|
|
|
Capital Loss
Carryforwards(2)
|
|
|
Late Year
Ordinary Loss(3)
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|
PCM
|
|
$
|
1,060,912
|
|
|
$
|
|
|
|
$
|
41,546,211
|
|
|
$
|
|
|
Dynamic Credit Income Fund
|
|
|
12,633,286
|
|
|
|
2,940,149
|
|
|
|
|
|
|
|
15,263,637
|
|
(2)
|
|
Capital loss carryforwards available as a reduction, to the extent provided in the regulations, of any future net realized gains. To the extent that these losses are used to offset future realized capital gains, such
gains will not be disbursed.
|
|
(3)
|
|
Certain ordinary losses realized during the period November 1, 2013 through December 31, 2013, which the Funds elected to defer to the following taxable year pursuant to income tax regulations.
|
|
Under the Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses
incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As
a result of this,
pre-enactment
capital loss carryforwards may be more likely to expire unused. Additionally,
post-enactment
capital losses that are carried forward will
retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
|
|
|
|
|
64
|
|
Annual Report
|
|
| December 31, 2013
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
6. Income Tax Information (continued)
At December 31, 2013, capital loss carryforward amounts were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No Expiration(4)
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
Short-Term
|
|
|
Long-Term
|
|
PCM
|
|
$
|
21,701,310
|
|
|
$
|
915,674
|
|
|
$
|
16,167,576
|
|
|
$
|
1,418,505
|
|
|
$
|
193,964
|
|
|
$
|
1,149,182
|
|
Dynamic Credit Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Carryforward amounts are subject to the provisions of the Regulated Investment Company Modernization Act of 2010.
|
|
For the year ended December 31, 2013, capital loss carryforwards were utilized as follows:
|
|
|
|
|
|
|
|
|
|
|
Post-Enactment Utilized
|
|
|
|
Short-Term
|
|
|
Long-Term
|
|
PCM
|
|
$
|
|
|
|
$
|
461,510
|
|
For the period or year ended December 31, 2013, permanent book-tax adjustments were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
(Dividends in Excess of)
Net Investment Income
|
|
|
Accumulated
Net Realized
Gain (Loss)
|
|
|
Paid-in
Capital
|
|
PCM(a)(b)
|
|
$
|
6,652
|
|
|
$
|
(6,652
|
)
|
|
$
|
|
|
Dynamic Credit Income Fund(a)(b)(c)(d)(e)
|
|
|
34,553,902
|
|
|
|
(34,529,782
|
)
|
|
|
(24,120
|
)
|
These permanent book-tax differences were primarily attributable to:
(a)
|
|
Differing treatment of swap payments
|
|
(b)
|
|
Reclassification of gains and losses on paydowns
|
|
(c)
|
|
Reclassification of consent fees
|
|
(d)
|
|
Reclassification of gains and losses from foreign currency transactions
|
|
(e)
|
|
Sale-buyback adjustments
|
|
Net investment income, net realized gains or losses and net assets were not affected by these adjustments.
At December 31, 2013, the aggregate cost basis and the net unrealized appreciation (depreciation) of investments for federal income tax purposes were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Tax
Cost Basis(6)
|
|
|
Unrealized
Appreciation
|
|
|
Unrealized
Deprecation
|
|
|
Net Unrealized
Appreciation
(Depreciation)
|
|
PCM
|
|
$
|
165,597,575
|
|
|
$
|
27,667,176
|
|
|
$
|
5,037,403
|
|
|
$
|
22,629,773
|
|
Dynamic Credit Income Fund
|
|
|
4,412,408,771
|
|
|
|
141,408,004
|
|
|
|
80,942,743
|
|
|
|
60,465,261
|
|
(6)
|
|
Differences, if any, between book and tax cost basis is primarily attributable to wash sale loss deferrals, basis adjustments to Interest only securities held by the Funds, differences in the book and tax
treatment of bond amortization and sale-buyback adjustment.
|
|
7. Subsequent Events
In preparing these
financial statements, the Funds management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
65
|
|
Notes to Financial Statements
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
December 31, 2013
7. Subsequent Events (continued)
On January 2, 2014, the following dividends were declared to stockholders/shareholders payable
February 3, 2014 to stockholders/shareholders of record on January 13, 2014.
|
|
|
PCM
|
|
$0.08 per common stock
|
Dynamic Credit Income
|
|
$0.15625 per common share
|
On February 3, 2014, the following dividends were declared to stockholders/shareholders payable March 3, 2014 to
stockholders/shareholders of record on February 13, 2014.
|
|
|
PCM
|
|
$0.08 per common stock
|
Dynamic Credit Income
|
|
$0.15625 per common share
|
On January 29, 2014, Mr. Alfred Murata replaced Mr. Mark Seidner as lead portfolio manager primarily responsible for the day-to-day
management of Dynamic Credit Income. Mr. Murata is a managing director and portfolio manager in the Newport Beach office on the mortgage credit team. Prior to joining PIMCO in 2001, he researched and implemented exotic equity and interest rate
derivatives at Nikko Financial Technologies. He has 14 years of investment experience and holds a PH. D. in engineering-economic systems and operations research from Stanford University. He also earned a J.D. from Stanford Law School and is a member
of the State Bar of California. Mr. Murata has been part of the portfolio management team of Dynamic Income since its inception in 2013.
There were no other
subsequent events identified that require recognition or disclosure.
|
|
|
|
|
66
|
|
Annual Report
|
|
| December 31, 2013
|
Financial Highlights
PCM Fund, Inc.
For a share of common stock outstanding throughout each year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
2013
|
|
|
|
|
2012
|
|
|
|
|
2011
|
|
|
|
|
2010
|
|
|
|
|
2009
|
|
Net asset value, beginning of year
|
|
|
|
|
$11.35
|
|
|
|
|
|
$9.48
|
|
|
|
|
|
$9.88
|
|
|
|
|
|
$7.73
|
|
|
|
|
|
$5.77
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
1.12
|
|
|
|
|
|
1.06
|
|
|
|
|
|
1.13
|
|
|
|
|
|
1.12
|
|
|
|
|
|
0.81
|
|
Net realized and change in unrealized gain (loss)
|
|
|
|
|
(0.20
|
)
|
|
|
|
|
1.93
|
|
|
|
|
|
(0.47
|
)
|
|
|
|
|
2.29
|
|
|
|
|
|
2.18
|
|
Total from investment operations
|
|
|
|
|
0.92
|
|
|
|
|
|
2.99
|
|
|
|
|
|
0.66
|
|
|
|
|
|
3.41
|
|
|
|
|
|
2.99
|
|
Dividends to Stockholders from Net Investment Income
|
|
|
|
|
(1.10
|
)
|
|
|
|
|
(1.12
|
)
|
|
|
|
|
(1.06
|
)
|
|
|
|
|
(1.26
|
)
|
|
|
|
|
(1.03
|
)
|
Net asset value, end of year
|
|
|
|
|
$11.17
|
|
|
|
|
|
$11.35
|
|
|
|
|
|
$9.48
|
|
|
|
|
|
$9.88
|
|
|
|
|
|
$7.73
|
|
Market price, end of year
|
|
|
|
|
$11.65
|
|
|
|
|
|
$12.02
|
|
|
|
|
|
$10.77
|
|
|
|
|
|
$10.80
|
|
|
|
|
|
$7.97
|
|
Total Investment Return
(1)
|
|
|
|
|
6.49
|
%
|
|
|
|
|
23.34
|
%
|
|
|
|
|
10.43
|
%
|
|
|
|
|
54.01
|
%
|
|
|
|
|
52.01
|
%
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s)
|
|
|
|
|
$128,672
|
|
|
|
|
|
$130,461
|
|
|
|
|
|
$108,810
|
|
|
|
|
|
$113,020
|
|
|
|
|
|
$88,290
|
|
Ratio of expenses to average net assets, including interest expense
(2)
|
|
|
|
|
2.05
|
%
|
|
|
|
|
2.59
|
%
|
|
|
|
|
2.44
|
%
|
|
|
|
|
2.41
|
%
|
|
|
|
|
2.67
|
%
|
Ratio of expenses to average net assets, excluding interest expense
|
|
|
|
|
1.52
|
%
|
|
|
|
|
1.76
|
%
|
|
|
|
|
1.75
|
%
|
|
|
|
|
1.75
|
%
|
|
|
|
|
1.71
|
%
|
Ratio of net investment income to average net assets
|
|
|
|
|
9.75
|
%
|
|
|
|
|
10.05
|
%
|
|
|
|
|
11.30
|
%
|
|
|
|
|
11.91
|
%
|
|
|
|
|
12.86
|
%
|
Portfolio turnover rate
|
|
|
|
|
6
|
%
|
|
|
|
|
13
|
%
|
|
|
|
|
26
|
%
|
|
|
|
|
28
|
%
|
|
|
|
|
57
|
%
|
(1)
|
|
Total investment return is calculated assuming a purchase of a share of common stock at the market price on the first day and a sale of a share of common stock 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 or sales charges
in connection with the purchase or sale of Fund stock.
|
|
(2)
|
|
Interest expense primarily relates to participation in reverse repurchase agreement transactions.
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
|
|
| December 31, 2013 |
|
|
Annual Report
|
|
|
67
|
|
Consolidated Financial Highlights
PIMCO Dynamic Credit Income Fund
For a share of common stock outstanding throughout
each period:
|
|
|
|
|
|
|
|
|
|
|
For the Period
January 31, 2013*
through
December 31, 2013
|
|
Net asset value, beginning of period
|
|
|
|
|
$23.88**
|
|
Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
1.33
|
|
Net realized and unrealized gain
|
|
|
|
|
0.76
|
|
Total from investment operations
|
|
|
|
|
2.09
|
|
Dividends and Distributions to Shareholders from:
|
|
|
|
|
|
|
Dividends to shareholders from net investment income
|
|
|
|
|
(1.68
|
)
|
Net realized gains
|
|
|
|
|
(0.24
|
)
|
Total dividends and distributions to shareholders
|
|
|
|
|
(1.92
|
)
|
Share Transactions:
|
|
|
|
|
|
|
Offering costs charged to paid-in-capital in excess of par
|
|
|
|
|
(0.01
|
)
|
Net asset value, end of period
|
|
|
|
|
$24.04
|
|
Market price, end of period
|
|
|
|
|
$22.48
|
|
Total Investment Return
(1)
|
|
|
|
|
(2.79
|
)%
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
|
|
|
$3,298,673
|
|
Ratio of expenses to average net assets, including interest expense
(2)
|
|
|
|
|
1.52
|
%
(3)
|
Ratio of expenses to average net assets, excluding interest expense
|
|
|
|
|
1.42
|
%
(3)
|
Ratio of net investment income to average net assets
|
|
|
|
|
6.06
|
%
(3)
|
Portfolio turnover rate
|
|
|
|
|
76
|
%
|
*
|
|
Commencement of operations.
|
|
**
|
|
Initial public offering price of $25.00 per share less underwriting discount of $1.125 per share.
|
|
(1)
|
|
Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each period 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 or sales charges in connection
with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.
|
|
(2)
|
|
Interest expense primarily relates to participation in reverse repurchase agreement transactions.
|
|
|
|
|
|
|
|
|
68
|
|
Annual Report
|
|
| December 31, 2013 |
|
|
See accompanying Notes to Financial Statements
|
Report of Independent Registered Public Accounting Firm
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
To the Stockholders/Shareholders and Board of Directors/Trustees of
PCM
Fund, Inc. and
PIMCO Dynamic Credit Income Fund
In our opinion, the
accompanying statements of assets and liabilities (consolidated statement of assets and liabilities for PIMCO Dynamic Credit Income Fund), including the schedules of investments (consolidated schedule of investments for PIMCO Dynamic Credit Income
Fund), and the related statements of operations (consolidated statement of operations for PIMCO Dynamic Credit Income Fund), of changes in net assets (consolidated changes in net assets for PIMCO Dynamic Credit Income Fund) and of cash flows
(consolidated cash flows for PIMCO Dynamic Credit Income Fund) and the financial highlights (consolidated financial highlights for PIMCO Dynamic Credit Income Fund) present fairly, in all material respects, the financial position of PCM Fund, Inc.
and PIMCO Dynamic Credit Income Fund (collectively the Funds) at December 31, 2013, the results of each of their operations and cash flows, the changes in their net assets and the financial highlights for periods presented, in conformity
with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of
securities at December 31, 2013 by correspondence with the custodian, agent banks and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
New York, New York
February 26, 2014
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
69
|
|
Tax Information/Annual Stockholder Meeting Results/Proxy Voting Policies
& Procedures/ Loan Investments and Origination
(unaudited)
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Federal Income Tax Information
As required by the Internal Revenue Code, shareholders must be notified regarding certain tax attributes of distributions made by each fund.
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the following percentages of ordinary dividends paid during the fiscal year ended December 31, 2013, are
designated as qualified dividend income:
|
|
|
|
|
PCM Fund, Inc.
|
|
|
0.01
|
%
|
Dynamic Credit Income Fund
|
|
|
1.19
|
%
|
Corporate shareholders are generally entitled to take the dividend received deduction on the portion of a Funds dividend
distribution that qualifies under tax law. The percentage of the following Funds ordinary income dividends paid during the fiscal year ended December 31, 2013, that qualify for the corporate dividend received deduction is set forth below:
|
|
|
|
|
PCM Fund, Inc.
|
|
|
0.01
|
%
|
Dynamic Credit Income Fund
|
|
|
1.07
|
%
|
In January 2014, shareholders were advised on IRS form 1099-DIV as to the federal tax status of the dividends and distributions received
during calendar year 2013. The amount that will be reported will be the amount to use on the shareholders 2013 federal income tax return and may differ from the amount which must be reported in connection with the funds tax year ended
December 31, 2013. Shareholders are advised to consult their tax advisers as to the federal, state and local tax status of the dividend income received from the fund.
Annual Stockholder Meeting Results:
PCM held its annual meeting of stockholders on April 30, 2013. Stockholders voted as indicated below:
|
|
|
|
|
|
|
|
|
|
|
Affirmative
|
|
|
Withheld
Authority
|
|
Re-election of James A. Jacobson Class I to serve until the annual meeting for the 2016 fiscal year
|
|
|
10,103,933
|
|
|
|
219,295
|
|
|
|
|
Re-election of William B. Ogden, IV Class I to serve until the annual meeting for the 2016 fiscal
year
|
|
|
10,128,658
|
|
|
|
194,570
|
|
The other members of the Board of Directors at the time of the meeting, namely, Messrs. Hans W. Kertess, Bradford K. Gallagher, John C.
Maney*, Alan Rappaport and Ms. Deborah A. DeCotis continued to serve.
Proxy Voting Policies & Procedures:
A description of the policies and
procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the most recent twelve month period ended
June 30 is available (i) without charge, upon request, by calling the Funds shareholder servicing agent at
(800) 254-5197;
(ii) on the Funds website at
us.allianzgi.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at www.sec.gov.
|
|
|
|
|
70
|
|
Annual Report
|
|
| December 31, 2013
|
Tax Information/Annual Stockholder Meeting Results/Proxy Voting Policies
& Procedures/ Loan Investments and Origination
(unaudited) (continued)
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Loan Investments and Origination:
The Funds may invest in loans and related investments, which include, among others, senior loans, subordinated loans (including second lien loans, B-Notes and mezzanine
loans), whole loans, commercial real estate and other commercial loans and structured loans. The Funds may originate loans or acquire direct interests in loans through primary loan distributions and/or in private transactions. In the case of
subordinated loans, there may be significant indebtedness ranking ahead of the borrowers obligation to the holder of such a loan, including in the event of the borrowers insolvency. Mezzanine loans are typically secured by a pledge of an
equity interest in the mortgage borrower that owns the real estate rather than an interest in a mortgage. Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among
others, credit risk, interest rate risk, variable and floating rate securities risk, and risks associated with mortgage-related securities. For more information on these and other risks, see Note 2 in the Notes to Financial Statements. In addition,
in many cases loans are subject to the risks associated with below-investment grade securities. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or
acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking
foreclosure actions associated with the loans.
|
|
|
|
|
|
|
December 31, 2013
|
|
| Annual Report
|
|
|
71
|
|
Privacy Policy
(unaudited)
PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Our Commitment to You
We
consider customer privacy to be a fundamental aspect of our relationship with shareholders and are committed to maintaining the confidentiality, integrity and security of our current, prospective and former shareholders personal information.
To ensure our shareholders privacy, we have developed policies that are designed to protect this confidentiality, while allowing shareholders needs to be served.
Obtaining Personal Information
In the course of providing shareholders with
products and services, we may obtain non-public personal information about shareholders, which may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from shareholder
transactions, from a shareholders brokerage or financial advisory firm, financial adviser or consultant, and/or from information captured on our internet web sites.
Respecting Your Privacy
As a matter of policy, we do not disclose any personal
or account information provided by shareholders or gathered by us to non-affiliated third parties, except as required for our everyday business purposes, such as to process transactions or service a shareholders account, or as otherwise
permitted by law. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, and gathering
shareholder proxies. We may also retain non-affiliated financial services providers, such as broker-dealers, to market our shares or products and we may enter into joint-marketing arrangements with them and other financial companies. We may also
retain marketing and research service firms to conduct research on shareholder satisfaction. These companies may have access to a shareholders personal and account information, but are permitted to use this
information solely to provide the specific service or as otherwise permitted by law. We may also provide a shareholders personal and account information to their respective brokerage or
financial advisory firm, Custodian, and/or to their financial advisor or consultant.
Sharing Information with Third Parties
We reserve the right to disclose or report personal information to non-affiliated third parties, in limited circumstances, where we believe in good faith that disclosure
is required under law to cooperate with regulators or law enforcement authorities, to protect our rights or property or upon reasonable request by any Fund in which a shareholder has chosen to invest. In addition, we may disclose information about a
shareholder or shareholders accounts to a non-affiliated third party only if we receive a shareholders written request or consent.
Sharing Information
with Affiliates
We may share shareholder information with our affiliates in connection with our affiliates everyday business purposes, such as servicing a
shareholders account, but our affiliates may not use this information to market products and services to you except in conformance with applicable laws or regulations. The information we share includes information about our experiences and
transactions with a shareholder and may include, for example, a shareholders participation in one of the Funds or in other investment programs, a shareholders ownership of certain types of accounts (such as IRAs), or other data about a
shareholders transactions or accounts. Our affiliates, in turn, are not permitted to share shareholder information with non-affiliated entities, except as required or permitted by law.
Procedures to Safeguard Private Information
We take seriously the obligation to
safeguard shareholder non-public personal information. In addition to this policy, we have also implemented procedures that are designed to
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PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
restrict access to a shareholders non-public personal information only to internal personnel who need to know that information in order to provide products or services to such shareholders.
In addition, we have physical, electronic and procedural safeguards in place to guard a shareholders non-public personal information.
Disposal of Confidential Records
We will dispose of records, if any, that are knowingly derived from data received from a consumer reporting agency regarding a shareholder that is an individual in a
manner that ensures the confidentiality of the data is maintained. Such records include, among other things, copies of consumer reports and notes of conversations with individuals at consumer reporting agencies.
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Dividend Reinvestment Plan
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PCM Fund, Inc./PIMCO Dynamic Credit Income Fund
Each Fund has adopted a Dividend Reinvestment Plan (the Plan) which allows common shareholders to reinvest Fund
distributions in additional common shares of the Fund. American Stock Transfer & Trust Company, LLC (the Plan Agent) serves as agent for common shareholders in administering the Plan. It is important to note that participation
in the Plan and automatic reinvestment of Fund distributions does not ensure a profit, nor does it protect against losses in a declining market.
Automatic enrollment/voluntary participation
Under the Plan, common shareholders whose shares are registered with the Plan Agent (registered
shareholders) are automatically enrolled as participants in the Plan and will have all Fund distributions of income, capital gains and returns of capital (together, distributions) reinvested by the Plan Agent in additional common
shares of the Fund, unless the shareholder elects to receive cash. Registered shareholders who elect not to participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholder of record (or if the
shares are held in street or other nominee name, to the nominee) by the Plan Agent. Participation in the Plan is voluntary. Participants may terminate or resume their enrollment in the Plan at any time without penalty by notifying the Plan Agent
online at www.amstock.com, by calling (800) 254-5197, by writing to the Plan Agent, American Stock Transfer & Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560, or, as applicable, by completing and
returning the transaction form attached to a Plan statement. A proper notification will be effective immediately and apply to the Funds next distribution if received by the Plan Agent at least three (3) days prior to the record date for
the distribution; otherwise, a notification will be effective shortly following the Funds next distribution and will apply to the Funds next succeeding distribution thereafter. If you
withdraw from the Plan and so request, the Plan Agent will arrange for the sale of your shares and send you the proceeds, minus a transaction fee and brokerage commissions.
How shares are purchased under the Plan
For each Fund distribution, the Plan Agent will acquire common shares for participants either (i) through receipt of
newly issued common shares from the Fund (newly issued shares) or (ii) by purchasing common shares of the Fund on the open market (open market purchases). If, on a distribution payment date, the net asset value per
common shares of the Fund (NAV) is equal to or less than the market price per common shares plus estimated brokerage commissions (often referred to as a market premium), the Plan Agent will invest the distribution amount on
behalf of participants in newly issued shares at a price equal to the greater of (i) NAV or (ii) 95% of the market price per common share on the payment date. If the NAV is greater than the market price per common shares plus estimated brokerage
commissions (often referred to as a market discount) on a distribution payment date, the Plan agent will instead attempt to invest the distribution amount through open market purchases. If the Plan Agent is unable to invest the full
distribution amount in open market purchases, or if the market discount shifts to a market premium during the purchase period, the Plan Agent will invest any un-invested portion of the distribution in newly issued shares at a price equal to the
greater of (i) NAV or (ii) 95% of the market price per share as of the last business day immediately prior to the purchase date (which, in either case, may be a price greater or lesser than the NAV per common shares on the distribution
payment date). No interest will be paid on distributions awaiting reinvestment. Under the Plan, the market price of common shares on a particular date is the last sales price on the exchange where the shares are listed on that date or, if there is
no sale on the exchange on that date, the mean between the closing bid
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and asked quotations for the shares on the exchange on that date. The NAV per common share on a particular date is the amount calculated on that date (normally at the close of regular trading on
the New York Stock Exchange) in accordance with the Funds then current policies.
Fees and expenses
No brokerage charges are imposed on reinvestments in
newly issued shares under the Plan. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. There are currently no direct service charges imposed on participants in
the Plan, although the Funds reserve the right to amend the Plan to include such charges. The Plan Agent imposes a transaction fee (in addition to brokerage commissions that are incurred) if it arranges for the sale of your common shares held under
the Plan.
Shares held through nominees
In the case of a registered shareholder such as a broker, bank or other nominee (together, a nominee) that
holds common shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of common shares certified by the nominee/record shareholder as representing the total amount registered in such
shareholders name and held for the account of beneficial owners who are to participate in the Plan. If your common shares are held through a nominee and are not registered with the Plan Agent,
neither you nor the nominee will be participants in or have distributions reinvested under the Plan. If you are a beneficial owner of common shares and wish to participate in the Plan, and your
nominee is unable or unwilling to become a registered shareholder and a Plan participant on your behalf, you may request that your nominee arrange to have all or a portion of your shares re-registered with the Plan Agent in your name so that you may
be enrolled as a participant in the Plan. Please contact your nominee for details or for other possible alternatives. Participants whose shares are registered with the Plan Agent in the name of one nominee firm may not be able to transfer the shares
to another firm and continue to participate in the Plan.
Tax consequences
Automatically reinvested dividends and distributions are taxed in the same manner as
cash dividends and distributions i.e., automatic reinvestment in additional shares does not relieve shareholders of, or defer the need to pay, any income tax that may be payable (or that is required to be withheld) on Fund dividends and
distributions. The Fund and the Plan Agent reserve the right to amend or terminate the Plan. Additional information about the Plan, as well as a copy of the full Plan itself, may be obtained from the Plan Agent, American Stock Transfer &
Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560; telephone number: (800) 254-5197; web site: www.amstock.com.
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