N-CSRS 1 dncsrs.htm PCM FUND, INC. PCM Fund, Inc.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

 

Investment Company Act file number

   811-07816

 

 

 

PCM Fund, Inc.
(Exact name of registrant as specified in charter)

 

1345 Avenue of the Americas, New York, New York   10105
(Address of principal executive offices)   (Zip code)

 

 

 

Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105
(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 212-739-3371

 

Date of fiscal year end: December 31, 2008

 

Date of reporting period: June 30, 2008

 

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

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


Table of Contents
Item 1. Report to Shareholder


Table of Contents

 

PCM Fund, Inc.

 

Semi-Annual Report

June 30, 2008

 

LOGO

 

 

LOGO


Table of Contents

 

PCM Fund, Inc. Letter to Shareholders

 

 

August 15, 2008

 

Dear Shareholder:

 

We are pleased to provide you with the semi-annual report for PCM Fund, Inc. (the “Fund”) for the six-months ended June 30, 2008.

 

As economic growth slowed and credit conditions tightened during the period, the U.S. bond market delivered modest but mostly positive returns. The Lehman Brothers Aggregate Bond Index posted a 1.13% return and the Lehman Brothers Mortgage Backed Bond Index returned 1.93%. The Federal Reserve (“the Fed”) reduced the Federal Funds rate four times during the period, paring the benchmark rate on loans between member banks from 4.25% to 2.0%. The Fed also sought other methods to inject liquidity into the economy.

 

On April 24, 2008, Allianz Global Investors Fund Management LLC (‘‘AGIFM’’), announced that the majority of shareholders of the Fund, approved to change the Fund’s investment manager from Pacific Investment Management Company LLC (‘‘PIMCO’’) to AGIFM. PIMCO will continue to be the Fund’s portfolio manager and sub-adviser pursuant to a portfolio management agreement between PIMCO and AGIFM. The Fund’s shareholders also elected new directors to the board, each of whom currently serves as a director/trustee of AGIFM’s other sponsored closed-end funds:

 

These changes will not impact the Fund’s investment objective, however the total management fees and administrative fees paid by the Fund will be lower.

 

For specific information on the Fund and its performance during the reporting period, please review the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Fund’s shareholder servicing agent at (800) 331-1710. In addition, a wide range of information and resources can be accessed through our Web site, www.allianzinvestors.com/closedendfunds.

 

Together with Allianz Global Investors Fund Management LLC, the Fund’s investment manager, and Pacific Investment Management Company LLC, the Fund’s sub-adviser, we thank you for investing with us.

 

We remain dedicated to serving your investment needs.

 

Sincerely,

 

LOGO      LOGO
Hans W. Kertess      Brian S. Shlissel
Chairman      President & Chief Executive Officer

 

6.30.08   PCM Fund, Inc. Semi-Annual Report   1


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PCM Fund, Inc. Fund Insights/Performance & Statistics

June 30, 2008 (unaudited)

 

 

 

For the six-months ended June 30, 2008, the Fund had a net asset value (“NAV”) return of (8.29)% and a market price return of 2.68%.

 

In the first half of 2008, Commercial mortgage-backed securities (“CMBS”) across the capital structure underperformed Treasuries with the Lehman Brothers CMBS Investment Grade Index underperforming (5.71)%.

 

The liquidity crisis throughout the first half of 2008 drove spreads wider on all CMBS despite strong fundamentals and no sign of the severe deterioration of collateral quality as was witnessed in other mortgage sectors.

 

Drivers of performance:

   

Exposure to CMBS, particularly in the higher quality, senior issues, was negative for performance as this sector sold off in the first half due to the liquidity crisis and forced selling by market participants looking to reduce balance sheet positions

   

An underweight to duration was negative for performance as yields rallied in response to the Fed actions and increasing fallout from the housing crisis

   

Exposure to some non-agency mortgage-backed security (“MBS”) issues detracted from performance as non-agency MBS and CMBS were similarly affected by systemic financial system deleveraging and the liquidity crisis

   

A curve steepening bias added to performance as the front end of the curve rallied relative to longer maturities as the Fed reduced interest rates

 

Total Return(1):   Market Price   Net Asset Value (“NAV”)

Six Months

  2.68%   (8.29)%

1 Year

  (0.38)%   (6.22)%

5 Year

  1.17%   3.90%

Commencement of Operations (9/2/93) to 6/30/08

  6.36%   6.98%

 

(1) Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the beginning of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the beginning of the period and expressing the result as a percentage. The calculation assumes that all of the Fund’s income dividends and capital gain distributions have been reinvested. Total return does not reflect broker commissions or sales charges. Total return for a period of less than one year is not annualized. Total return for a period more than one year represents the average annual total return.

 

Common Share Market Price/NAV Performance:

Commencement of Operations (9/2/93) to 6/30/08

LOGO

Market Price/NAV:    

Market Price

  $10.10

NAV

  $9.93

Premium to NAV

  1.71%

Market Price Yield(2)

  8.32%

Moody’s Ratings

    (as a % of total investments)    

LOGO


 

2   PCM Fund, Inc. Semi-Annual Report   6.30.08


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The Fund’s performance at market price will differ from its results at NAV. Although market price returns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s shares, or changes in Fund distributions.

 

An investment in the Fund involves risk, including the loss of principal. Total return, market price, market yield and net asset value will fluctuate with changes in market conditions. This data is provided for information only and is not typically intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a onetime public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Net asset value is equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

 

(2) Market Price Yield is determined by dividing the annualized current monthly per share dividend (comprised of net investment income) to common shareholders by the market price per common share at June 30, 2008.

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   3


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited)

    

 

Principal
Amount
(000)
            Credit Rating
(Moody’s/S&P)
  Value

MORTGAGE-BACKED SECURITIES – 124.6%

   
    Banc of America Commercial Mortgage, Inc., CMO,      
  $2,000  

5.414%, 9/10/47 (e)

  Aaa/AAA   $1,903,261
  2,000  

5.476%, 3/11/41, VRN (a)

  NR/BBB+   1,680,846
  916  

5.918%, 4/11/36 (a)(e)

  NR/AA-   846,130
  700  

6.29%, 6/11/35 (a)

  Ba1/BBB   597,206
  2,500  

7.224%, 4/15/36, VRN (e)

  A2/NR   2,613,270
  2,800  

7.941%, 11/15/31, VRN (e)

  Aa1/AA+   2,867,943
    Bear Stearns Commercial Mortgage Securities, Inc., CMO,      
  5  

5.06%, 11/15/16

  Aaa/AAA   5,353
  1,000  

5.716%, 2/11/41, VRN (a)

  NR/BBB-   657,715
  1,500  

5.817%, 5/14/16 (a)

  Aaa/AAA   1,530,354
  1,000  

5.978%, 5/11/39, VRN (a)

  NR/BBB+   879,704
  2,000  

6.177%, 9/11/42, VRN (a)

  NR/A   1,291,512
  1,332  

6.50%, 2/15/32 (a)

  NR/BB   1,078,445
  1,258  

6.625%, 10/15/32 (a)

  NR/B+   788,019
  1,536  

7.00%, 5/20/30, VRN (e)

  Aaa/AAA   1,631,587
    Bear Stearns Commercial Mortgage Securities Trust, CMO, VRN (e),      
  2,000  

5.694%, 6/11/50

  NR/AAA   1,889,108
  2,000  

5.902%, 6/11/40

  Aaa/NR   1,906,724
  1,294   Carey Commercial Mortgage Trust, 5.97%, 9/20/19, CMO (a)(e)   Aaa/NR   1,287,494
    Chase Commercial Mortgage Securities Corp., CMO (a),      
  1,000  

6.484%, 2/12/16, VRN (e)

  Aaa/NR   1,025,404
  1,000  

6.65%, 7/15/32

  Baa1/NR   950,189
  1,600  

6.65%, 7/15/32

  Ba2/NR   1,373,702
  1,500  

6.887%, 10/15/32

  NR/BB+   1,305,971
  1,015   Citigroup/Deutsche Bank Commercial Mortgage Trust,      
   

5.400%, 7/15/44, CMO, VRN (e)

  Aa2/AA   876,066
  3,000   Commercial Capital Access One, Inc., 7.707%, 11/15/28, CMO, VRN (a)   NR/NR   2,624,539
  2,500   Commercial Mortgage Asset Trust, 6.975%, 1/17/32, CMO, VRN (e)   Aaa/AAA   2,624,947
    Commercial Mortgage Pass-Through Certificates, CMO (a),      
  2,000  

5.756%, 2/5/19, VRN

  NR/BBB-   1,593,463
  1,500  

6.586%, 7/16/34 (e)

  Aaa/AAA   1,423,920
  2,893  

6.83%, 2/14/34, VRN (e)

  Aaa/NR   2,993,567
  1,500  

6.938%, 7/16/34, VRN

  Aa2/A+   1,160,757
  1,500  

8.484%, 8/15/33, VRN

  NR/BBB+   1,549,212
    Credit Suisse Mortgage Capital Certificates, CMO (e),      
  5,000  

5.467%, 9/15/39

  Aaa/AAA   4,762,289
  414  

6.50%, 5/25/36

  Aaa/AAA   343,995
    CS First Boston Mortgage Securities Corp., CMO,      
  23,730  

0.444%, 12/15/35, IO, VRN (a)(e)

  NR/AAA   781,181
  2,000  

5.322%, 8/15/36, VRN (a)

  Ba1/BB+   1,298,421
  2,600  

5.554%, 12/15/36, VRN (a)(e)

  NR/BBB+   2,090,542
  3,000  

7.17%, 5/17/40 (e)

  NR/AA-   3,112,375
  2,000  

7.46%, 1/17/35, VRN (a)(e)

  NR/NR   2,047,968
  1,886   CVS Lease Pass-Through, 5.88%, 1/10/28 (a)(e)   Baa2/BBB+   1,829,120
  135   DLJ Commercial Mortgage Corp., 7.295%, 11/12/31, CMO, VRN   Aaa/NR   135,748
         

 

4   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
            Credit Rating
(Moody’s/S&P)
  Value
    Fannie Mae, MBS (e),      
  $1,417  

5.237%, 6/1/23

  Aaa/AAA   $1,386,020
  98  

5.927%, 8/1/26, FRN

  Aaa/AAA   98,399
  152  

9.375%, 4/1/16

  Aaa/AAA   169,829
  5,640   FFCA Secured Lending Corp., 1.330%, 9/18/27, CMO, IO, VRN (a)   Aaa/NR   118,539
    Federal Housing Administration (f),      
  2,390  

7.38%, 4/1/41

  Aaa/AAA   2,377,523
  219  

7.43%, 7/1/18

  Aaa/AAA   219,551
  102  

8.36%, 1/1/12

  Aaa/AAA   101,242
  2,000   First Union-Lehman Brothers-Bank of America, 6.778%, 11/18/35, CMO (e)   Aaa/AAA   2,077,873
  1,000   First Union National Bank-Bank of America Commercial Mortgage Trust,      
   

6.00%, 1/15/11, CMO (a)

  Ba1/NR   921,846
    GE Capital Commercial Mortgage Corp., CMO, VRN,      
  1,000  

5.274%, 7/10/45 (a)

  NR/BBB+   521,250
  1,000  

5.306%, 5/10/43 (e)

  NR/A   796,387
    GMAC Commercial Mortgage Securities, Inc., CMO,      
  20  

6.50%, 5/15/35

  Aaa/AA   20,443
  2,000  

6.50%, 5/15/35 (a)

  NR/BBB   1,943,085
  2,500  

6.50%, 5/15/35 (e)

  Aaa/AAA   2,511,453
  1,500  

7.182%, 5/15/30, VRN (a)

  NR/NR   709,570
  1,500  

8.325%, 9/15/35, VRN (a)

  NR/NR   1,546,545
    Greenwich Capital Commercial Funding Corp., CMO,      
  1,500  

5.419%, 1/5/36, VRN (a)

  A2/A+   1,306,898
  2,000  

5.444%, 3/10/39 (e)

  Aaa/AAA   1,867,603
    GS Mortgage Securities Corp. II, CMO,      
  2,000  

3.50%, 3/6/20, FRN (a)

  NR/BBB   1,765,887
  5,750  

5.56%, 11/10/39 (e)

  Aaa/NR   5,515,603
  2,000  

5.74%, 11/10/39, VRN

  A1/NR   1,451,853
  3,500  

6.615%, 2/14/16 (a)

  NR/AAA   3,706,657
  3,480  

7.644%, 8/5/18, VRN (a)

  Baa2/NR   3,190,047
  1,185   GSMPS Mortgage Loan Trust, 8.00%, 9/19/27, CMO, VRN (a)(e)   NR/NR   1,208,662
  30,749   Hilton Hotel Pool Trust, 0.863%, 10/3/15, CMO, IO, VRN (a)(e)   Aaa/AAA   452,676
  2,000   Host Marriot Pool Trust, 8.31%, 8/3/15, CMO (a)(e)   Aaa/AAA   2,080,415
    JPMorgan Chase Commercial Mortgage Securities Corp., CMO,      
  9,806  

0.780%, 3/12/39, IO, VRN (a)

  Aaa/NR   339,084
  1,500  

5.435%, 5/15/41, VRN (a)

  Baa1/NR   1,191,986
  2,000  

6.162%, 5/12/34 (e)

  Aaa/NR   2,040,925
  3,000  

6.465%, 11/15/35

  NR/AAA   3,084,847
  5,000   LB Commercial Conduit Mortgage Trust, 6.00%, 10/15/35, CMO (a)(e)   A2/BBB+   4,962,685
    LB-UBS Commercial Mortgage Trust CMO (a),      
  1,500  

5.683%, 7/15/35

  Ba1/BBB-   1,121,874
  1,572  

6.95%, 3/15/34, VRN

  A1/A   1,512,937
  2,000  

7.29%, 9/15/34

  A2/NR   1,971,442
  2,000   Merrill Lynch/Countrywide Commercial Mortgage Trust,      
   

6.156%, 8/12/49, CMO, VRN

  NR/A   1,297,046
    Merrill Lynch Mortgage Investors, Inc., CMO, VRN,      
  1,500  

7.081%, 12/15/30

  A3/AA   1,488,401
  159  

7.381%, 2/15/30

  Aaa/BBB+   159,102

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   5


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
            Credit Rating
(Moody’s/S&P)
  Value
    Morgan Stanley Capital I, CMO, VRN,      
  $100  

5.379%, 8/13/42 (a)

  NR/A-   $76,803
  500  

5.379%, 11/14/42

  A1/A+   385,286
  2,000  

5.447%, 2/12/44 (e)

  Aaa/AAA   1,861,524
  200  

7.212%, 12/15/31 (e)

  Aaa/NR   201,812
  919  

7.559%, 4/30/39 (a)(e)

  NR/NR   873,000
  1,119   Multi-Family Capital Access One, Inc., 8.82%, 1/15/24, CMO, VRN   NR/NR   1,185,247
  2,500   Nationslink Funding Corp., 7.105%, 8/20/30, CMO, VRN (a)   NR/BBB   2,406,520
  1,000   Office Portfolio Trust, 6.778%, 2/3/16, CMO (a)   Baa2/NR   976,719
  2,000   Prudential Securities Secured Financing Corp.,      
   

6.755%, 6/16/31, CMO, VRN (a)

  NR/NR   1,921,997
  966   Residential Asset Securitization Trust, 6.00%, 3/25/37, CMO (e)   NR/AAA   854,674
    RMF Commercial Mortgage Pass-Through Certificates, CMO (a),      
  318  

7.471%, 1/15/19

  NR/NR   179,079
  265  

9.404%, 1/15/19, VRN

  NR/NR   80,732
  3,568   Times Square Hotel Trust, 8.528%, 8/1/26 (a)   Baa3/BBB-   3,603,805
  3,000   TrizecHahn Office Properties, 7.604%, 5/15/16, CMO (a)   Baa1/A   2,869,981
    Wachovia Bank Commercial Mortgage Trust, CMO (a),      
  47,054  

0.257%, 10/15/41, IO, VRN (e)

  Aaa/AAA   816,182
  1,020  

4.982%, 2/15/35

  NR/BBB-   845,698
  2,500  

5.188%, 2/15/41, VRN

  Baa2/BBB   1,843,016
  1,500  

5.518%, 1/15/41, VRN

  Baa2/BBB   1,101,722
  2,000  

6.29%, 4/15/34

  Ba1/BBB+   1,789,557
         

Total Commercial Mortgage-Backed Securities (cost-$154,598,250)

  140,467,586
         
         

REAL ESTATE ASSET-BACKED SECURITIES – 26.2%

  2,500   Access Financial Manufactured Housing Contract Trust, 7.65%, 5/15/21   B2/NR   2,231,815
  2,213   ACE Securities Corp., 5.733%, 4/25/35, FRN (a)   Caa1/CCC   74,799
  447   Ameriquest Mortgage Securities, Inc., 8.108%, 2/25/33, FRN   Ca/CCC   60,364
  220   Asset-Backed Securities Corp. Home Equity, 5.233%, 6/21/29, FRN   Caa1/NR   42,032
  490   Banc of America Alternative Loan Trust, 6.25%, 1/25/37, CMO   Aa1/NR   340,366
    Bear Stearns Alt-A Trust, CMO,      
  395  

5.470%, 7/25/35, FRN (e)

  Aaa/AAA   296,459
  481  

6.124%, 5/25/36, VRN (e)

  Aaa/AAA   390,908
  1,029  

6.25%, 8/25/36, VRN

  Aaa/AAA   803,963
  428   Bear Stearns Asset Backed Securities Trust, 5.50%, 12/25/35, CMO (e)   Aaa/AAA   388,305
    Bear Stearns Second Lien Trust, FRN (a),      
  2,316  

4.983%, 12/25/36

  Baa2/CC   220,625
  230   CDC Mortgage Capital Trust, 7.583%, 3/25/33, FRN   C/D   18,568
    Conseco Finance Securitizations Corp.,      
  1,822  

7.96%, 2/1/32

  Caa1/CCC-   1,622,984
  792  

7.97%, 5/1/32

  Caa1/CCC-   584,427
  463   Countrywide Alternative Loan Trust, 6.00%, 11/25/35, CMO (e)   Aaa/AAA   375,577
  500   Credit Suisse Mortgage Capital Certificates, 5.896%, 4/25/36, CMO (e)   Aaa/AAA   382,449
  316   CS First Boston Mortgage Securities Corp., 7.00%, 2/25/33, CMO (e)   Aaa/AAA   317,903
    Fannie Mae,      
  40  

3.65%, 9/25/23, CMO, FRN

  Aaa/AAA   40,180
  457  

5.00%, 11/25/35, CMO (e)

  Aaa/AAA   398,389

 

6   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
              Credit Rating
(Moody’s/S&P)
  Value
  $365    

5.00%, 2/15/36, CMO (e)

  Aaa/AAA   $288,591
  4,680    

6.108%, 7/1/12, MBS (e)

  Aaa/AAA   4,903,136
  507    

7.00%, 10/15/22, CMO (e)

  Aaa/AAA   513,278
  548    

7.00%, 10/1/33, MBS (e)

  Aaa/AAA   574,352
  18    

7.875%, 11/1/18, MBS (e)

  Aaa/AAA   19,036
  39    

8.00%, 7/1/09, MBS (e)

  Aaa/AAA   39,593
  6    

8.00%, 10/1/10, MBS

  Aaa/AAA   6,358
  1    

8.00%, 12/1/12, MBS

  Aaa/AAA   716
  5    

8.00%, 6/1/15, MBS

  Aaa/AAA   5,245
  22    

8.00%, 6/1/15, MBS (e)

  Aaa/AAA   22,826
  15    

8.00%, 8/1/15, MBS

  Aaa/AAA   15,623
  128    

8.00%, 7/25/22, CMO (e)

  Aaa/AAA   138,383
  4    

8.50%, 5/1/17, MBS

  Aaa/AAA   3,829
  6    

8.50%, 7/1/17, MBS

  Aaa/AAA   6,306
  3    

8.50%, 8/1/19, MBS

  Aaa/AAA   3,698
  1    

8.50%, 1/1/20, MBS

  Aaa/AAA   785
  5    

8.50%, 10/1/20, MBS

  Aaa/AAA   5,205
  38    

8.50%, 9/1/21, MBS (e)

  Aaa/AAA   40,620
  479    

8.50%, 11/15/21, CMO (e)

  Aaa/AAA   519,900
  9    

8.50%, 12/1/21, MBS

  Aaa/AAA   9,629
  20    

8.50%, 6/1/22, MBS

  Aaa/AAA   21,368
  244    

8.50%, 9/1/22, MBS (e)

  Aaa/AAA   266,176
  9    

8.50%, 11/1/25, MBS

  Aaa/AAA   10,193
  2    

8.50%, 1/1/26, MBS

  Aaa/AAA   1,861
  3    

8.50%, 3/1/29, MBS

  Aaa/AAA   3,097
  44    

8.50%, 4/1/30, MBS (e)

  Aaa/AAA   48,989
  47    

8.50%, 6/1/30, MBS (e)

  Aaa/AAA   51,954
  40    

8.50%, 11/1/30, MBS (e)

  Aaa/AAA   44,433
  39    

8.50%, 1/1/31, MBS (e)

  Aaa/AAA   42,368
  67    

8.50%, 4/1/32, MBS (e)

  Aaa/AAA   73,191
  247    

9.00%, 3/25/20, CMO (e)

  Aaa/AAA   276,813
  501     First Horizon Alternative Mortgage Securities,      
   

5.382%, 8/25/35, CMO, FRN (e)

  Aaa/AAA   357,510
    Freddie Mac,      
  204    

5.258%, 4/1/32, FRN, MBS (e)

  Aaa/AAA   204,255
  201    

6.559%, 3/1/32, FRN, MBS (e)

  Aaa/AAA   203,579
  322    

6.914%, 11/1/29, FRN, MBS (e)

  Aaa/AAA   324,653
  2    

7.00%, 9/1/10, MBS

  Aaa/AAA   2,159
  7    

7.00%, 2/1/11, MBS

  Aaa/AAA   6,817
  14    

7.00%, 7/1/12, MBS

  Aaa/AAA   15,058
  36    

7.00%, 12/1/14, MBS

  Aaa/AAA   37,406
  9    

7.00%, 2/1/15, MBS

  Aaa/AAA   9,647
  20    

7.00%, 9/1/15, MBS

  Aaa/AAA   21,493
  (c)  

7.00%, 12/1/15, MBS

  Aaa/AAA   437
  19    

7.00%, 3/1/16, MBS

  Aaa/AAA   19,762
  42    

7.00%, 6/1/16, MBS (e)

  Aaa/AAA   44,361
  105    

7.00%, 3/1/31, MBS (e)

  Aaa/AAA   110,999
  37    

7.00%, 10/1/31, MBS (e)

  Aaa/AAA   39,367
  601    

7.00%, 8/1/32, MBS (e)

  Aaa/AAA   635,164

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   7


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
              Credit Rating
(Moody’s/S&P)
  Value
  $188    

7.048%, 8/1/30, FRN, MBS (e)

  Aaa/AAA   $187,922
  2    

8.00%, 7/1/10, MBS

  Aaa/AAA   1,905
  2    

8.00%, 10/1/10, MBS

  Aaa/AAA   2,292
  1    

8.00%, 6/1/11, MBS

  Aaa/AAA   1,385
  2    

8.00%, 1/1/12, MBS

  Aaa/AAA   2,227
  2    

8.00%, 5/1/12, MBS

  Aaa/AAA   1,705
  3    

8.00%, 6/1/12, MBS

  Aaa/AAA   3,274
  1    

8.00%, 5/1/15, MBS

  Aaa/AAA   704
  (b)  

8.00%, 6/1/15, MBS

  Aaa/AAA   507
    Green Tree Financial Corp.,      
  122    

6.18%, 4/1/30

  Ba3/NR   109,509
  479    

6.22%, 3/1/30 (e)

  NR/BBB   432,045
  700    

6.53%, 2/1/31, VRN

  NR/B-   573,519
  368    

6.76%, 3/1/30, VRN

  NR/BBB   339,176
  404    

6.81%, 12/1/27, VRN (e)

  Ba1/BBB   392,860
  922    

7.05%, 1/15/27

  B3/B   852,327
  103    

7.07%, 1/15/29

  NR/A+   102,149
    Greenpoint Manufactured Housing,      
  71    

7.59%, 11/15/28

  Ba1/NR   70,629
  2,000    

8.30%, 10/15/26, VRN

  Ca/NR   1,904,077
  388     GSAA Trust, 2.753%, 6/25/35, FRN   Aaa/AAA   249,111
    Keystone Owner Trust (a),      
  361    

9.00%, 1/25/29

  Baa3/NR   328,090
  793     Merrill Lynch Mortgage Investors, Inc., 4.949%, 8/25/33, CMO, VRN (a)   Baa2/BB+   549,788
    Oakwood Mortgage Investors, Inc.,      
  113    

2.701%, 5/15/13, FRN

  Ba2/BB-   90,184
  1,000    

6.89%, 11/15/32, VRN

  Ca/CCC-   503,502
    Ocwen Residential MBS Corp., CMO, VRN (a),      
  576    

6.886%, 6/25/39

  NR/BBB   288,402
  3,835    

7.00%, 10/25/40

  B3/NR   1,479,927
  924     Residential Accredit Loans, Inc., 6.00%, 8/25/35, CMO (e)   NR/AAA   841,526
  547     Saxon Asset Securities Trust, 8.64%, 12/25/32   Ba2/NR   514,969
  68     Structured Asset Investment Loan Trust, 5.483%, 10/25/33, FRN   B3/B-   983
  461     TBW Mortgage, 6.00%, 7/25/36, CMO (e)   NR/AAA   373,941
  1,000     UCFC Manufactured Housing Contract, 7.90%, 1/15/28, VRN   Ca/NR   542,418
  250     Wilshire Mortgage Loan Trust, 8.99%, 5/25/28 (a)   NR/NR   241,862
         

Total Real Estate Asset-Backed Securities (cost-$30,962,019)

  29,563,247
         
         

CORPORATE BONDS & NOTES – 10.5%

     

Financial Services – 0.9%

     
  500     Ford Motor Credit Co. LLC, 8.00%, 12/15/16 (e)   B1/B   364,282
  750     Tenneco Automotive, Inc., 8.625%, 11/15/14 (e)   B3/B   665,625
         
    1,029,907
         
   

Industrial – 7.8%

     
  1,000     Archer-Daniels-Midland Co., 6.45%, 1/15/38 (e)   A2/A   1,007,216
  500     Bon-Ton Stores, Inc., 10.25%, 3/15/14 (e)   Caa1/CCC+   330,625
  500     CCO Holdings LLC, 8.75%, 11/15/13 (e)   Caa1/CCC   462,500

 

8   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
            Credit Rating
(Moody’s/S&P)
  Value

Industrial (continued)

   
  $500   CSC Holdings, Inc., 7.875%, 2/15/18   B1/BB   $467,500
  500   Dynegy Holdings, Inc., 7.125%, 5/15/18 (e)   B2/B   437,500
  500   Echostar DBS Corp., 7.125%, 2/1/16 (e)   Ba3/BB-   463,750
    HCA, Inc.,      
  1,250  

6.75%, 7/15/13 (e)

  Caa1/B-   1,103,125
  275  

9.25%, 11/15/16 (e)

  B2/BB-   283,937
  325  

9.25%, 11/15/16 (a)

  B2/BB-   336,375
  950   RH Donnelley Corp., 8.875%, 1/15/16   B3/B-   574,750
  500   SemGroup L.P., 8.75%, 11/15/15 (a)(e)   B1/NR   487,500
    United Air Lines, Inc.,      
  973  

6.636%, 7/2/22

  Baa2/BBB   806,604
  1,281  

7.73%, 1/1/12

  Ba3/BB+   1,282,500
  800   Verso Paper Holdings LLC and Verso Paper, Inc., 9.125%, 8/1/14 (e)   B2/B+   786,000
         
        8,829,882
         
 

Utilities – 1.8%

     
  500   Cincinnati Bell, Inc., 8.375%, 1/15/14 (e)   B2/B-   486,250
  1,000   NGPL Pipe Co. LLC, 7.768%, 12/15/37 (a)(e)   Baa3/BBB-   1,052,395
    NRG Energy, Inc.,      
  350  

7.25%, 2/1/14 (e)

  B1/B   335,125
  150  

7.375%, 2/1/16

  B1/B   141,563
         
        2,015,333
         

Total Corporate Bonds & Notes (cost-$13,069,668)

  11,875,122
         
         

MUNICIPAL BONDS & NOTES – 2.5%

     

Arkansas – 0.8%

     
  985  

Little Rock Municipal Property Owners Multipurpose Improvement Dist., Special Tax, 7.20%, 3/1/32, Ser. B

  NR/NR   964,404
         

Iowa – 0.3%

     
  345   Dickinson Cnty. Rev., 7.75%, 12/1/12, Ser. B   NR/NR   347,639
         

Virginia – 0.6%

     
  620   Lexington Industrial Dev. Auth. Rev., 8.00%, 1/1/15, Ser. C   NR/NR   630,515
         

West Virginia – 0.8%

     
  985   Tobacco Settlement Finance Auth. Rev., 7.467%, 6/1/47, Ser. A   Baa3/BBB   879,940
         

Total Municipal Bonds & Notes (cost-$2,864,030)

  2,822,498
         
         

OTHER BONDS & NOTES – 1.6%

     
  1,640   Denver Arena Trust, 6.94%, 11/15/19 (a)   NR/NR   1,567,503
  1,856   First International Bank N.A. 8.221%, 4/15/26, ABS, FRN (a)   C/NR   103,449
  138   PPM America High Yield CBO Ltd., 3.775%, 6/1/11   NR/NR   91,373
         

Total Other Bonds & Notes (cost-$3,519,674)

  1,762,325
         

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   9


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Principal
Amount
(000)
       Credit Rating
(Moody’s/S&P)
  Value  
SHORT-TERM INVESTMENTS – 9.4%      
U.S. Treasury Bills (c) – 5.5%      
$6,250   1.01%-1.94%, 9/11/08-9/25/08 (cost-$6,224,808)     $6,212,268  
         
Commercial Paper – 1.8%      
Financial Services – 1.8%      
2,000   Bank of America Corp., 2.73%, 9/22/08 (cost-$1,987,412)   P-1/A-1+   1,986,860  
         
Corporate Notes – 0.3%      
Financial Services – 0.3%      
229   CCCA LLC, 7.80%, 10/15/08 (a)   NR/AAA   231,314  
180   General Motors Acceptance Corp. LLC, 6.00%, 9/15/08 (e)   B3/B   177,460  
         
Total Corporate Notes (cost-$409,221)     408,774  
         
Repurchase Agreement – 1.8%      
2,010  

State Street Bank & Trust Co.,
dated 6/30/08, 1.65%, due 7/1/08, proceeds $2,010,092; collateralized by Freddie Mac, 3.25%, due 2/12/10, valued at $2,050,313 including accrued interest (cost-$2,010,000)

    2,010,000  
         
Total Short-Term Investments (cost-$10,631,441)     10,617,902  
         
 
Contracts/
Notional
Amount
                
OPTIONS PURCHASED (d) – 0.0%      
 
Call Options – 0.0%      
7,000,000  

9-Year Interest Rate Swap (OTC),
Pay 3-Month USD LIBOR Floating Rate Index,
strike rate 3.60%, expires 2/23/09

    30,205  
         
 
Put Options – 0.0%      
7,000,000  

9-Year Interest Rate Swap (OTC),
Pay 3-Month USD LIBOR Floating Rate Index,
strike rate 5.80%, expires 2/23/09

    40,899  
         
Total Options Purchased (cost-$150,850)     71,104  
         
Total Investments (cost-$215,795,932) – 174.8%     197,179,784  
         
Liabilities in excess of other assets – (74.8)%     (84,403,831 )
         
Net Assets—100.0%     $112,775,953  
         
       
       
       
       
       
       
       
       
       
       
       

 

10   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Schedule of Investments

June 30, 2008 (unaudited) (continued)

    

 

Notes to Schedule of Investments:

(a) 144A Security – Security exempt from registration, under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  
(b) Principal amount less than $500.  
(c) All or partial amount segregated as collateral for swaps.  
(d) Non-income producing.  
(e) All or partial amount segregated as collateral for reverse repurchase agreements.  
(f) Securities with an aggregate value of $2,698,316, representing 2.39% of net assets, have been fair-valued using methods as described in Note 1(a) in the Notes to Financial Statements.  

 

 

Glossary:

ABS

  -   Asset Backed Securities

CBO

  -   Collateralized Bond Obligation

CMO

  -   Collateralized Mortgage Obligation

FRN

  -   Floating Rate Note. The interest rate disclosed reflects the rate in effect on June 30, 2008.

IO

  -   Interest Only

LIBOR

  -   London Inter-Bank Offered Rate

MBS

  -   Mortgage-Backed Securities

NR

  -   Not Rated

OTC

  -   Over-the-Counter

VRN

  -   Variable Rate Note. Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on June 30, 2008.

 

See accompanying Notes to Financial Statements   6.30.08   PCM Fund, Inc. Semi-Annual Report   11


Table of Contents

 

PCM Fund, Inc. Statement of Assets and Liabilities

June 30, 2008 (unaudited)

 

Assets:

       

Investments, at value (cost-$215,795,932)

      $197,179,784

Unrealized appreciation of swaps

      2,118,315

Interest receivable

      1,590,382

Receivable for investments sold

      1,014,111

Premium for swaps purchased

      945,628

Receivable for terminated swaps

      774,981

Deposits with brokers for future contracts collateral

      35,000

Prepaid expenses

      13,400

Total Assets

      203,671,601
 

Liabilities:

       

Payable to custodian for cash overdraft

      3,331,152

Payable for reverse repurchase agreements

      77,535,395

Premium for swaps sold

      5,595,547

Unrealized depreciation of swaps

      3,362,658

Dividends payable to shareholders

      795,377

Interest payable for reverse repurchase agreements

      97,285

Investment management fees payable

      75,327

Accrued expenses

      102,907

Total Liabilities

      90,895,648

Net Assets

      $112,775,953
 

Composition of Net Assets:

       

Common Stock:

       

Par value ($0.001 per share, applicable to 11,362,529 shares issued and outstanding)

      $11,363

Paid-in-capital in excess of par

      155,269,299

Dividends in excess of net investment income

      (90,754)

Accumulated net realized loss

      (22,553,559)

Net unrealized depreciation of investments and swaps

      (19,860,396)

Net Assets

      $112,775,953

Net Asset Value Per Share

      $9.93

 

12   PCM Fund, Inc. Semi-Annual Report   6.30.08   See accompanying Notes to Financial Statements


Table of Contents

 

PCM Fund, Inc. Statement of Operations

Six months ended June 30, 2008 (unaudited)

 

Investment Income:

       

Interest

      $7,209,087
 

Expenses:

       

Interest expense

      1,473,530

Investment management fees

      437,576

Legal fees

      72,400

Directors’ fees and expenses

      37,350

Administration fees

      36,586

Shareholder communications

      34,590

Custodian and accounting agent fees

      23,430

Transfer agent fees

      18,100

Audit and tax services

      9,050

New York Stock Exchange listing fees

      8,098

Miscellaneous

      18,100

Net expenses

      2,168,810
 

Net Investment Income

      5,040,277
 

Realized and Change in Unrealized Gain (Loss):

       

Net realized gain on:

       

Investments

      112,759

Swaps

      12,316,210

Net change in unrealized appreciation/depreciation of:

       

Investments

      (14,880,097)

Swaps

      (13,204,884)

Net realized and change in unrealized loss on investments and swaps

      (15,656,012)

Net Decrease in Net Assets Resulting from Investment Operations

      $(10,615,735)

 

See accompanying Notes to Financial Statements   6.30.08   PCM Fund, Inc. Semi-Annual Report   13


Table of Contents

 

PCM Fund, Inc. Statement of Changes in Net Assets

         Six Months
ended
June 30, 2008
(unaudited)
        Year ended
December 31, 2007
 

Investment Operations:

            

Net investment income

     $ 5,040,277       $      9,075,077  

Net realized gain (loss) on investments and swaps

       12,428,969       (20,211,107 )

Net change in unrealized appreciation/depreciation of investments and swaps

       (28,084,981 )     14,778,761  

Net increase (decrease) in net assets resulting from investment operations

       (10,615,735 )     3,642,731  

Dividends to Shareholders from net investment income

       (4,770,370 )     (10,074,228 )

Capital Share Transactions:

            

Reinvestment of dividends

       69,699       265,320  

Total decrease in net assets

       (15,316,406 )     (6,166,177 )
   

Net Assets:

            

Beginning of period

       128,092,359       134,258,536  

End of period (including dividends in excess of net investment income of $(90,754) and $(360,661), respectively)

     $ 112,775,953       $  128,092,359  
   

Shares Issued in reinvestment of dividends

       6,846       21,409  

 

14   PCM Fund, Inc. Semi-Annual Report   6.30.08   See accompanying Notes to Financial Statements


Table of Contents

 

PCM Fund, Inc. Statement of Cash Flow      

Six months ended June 30, 2008 (unaudited)

 

Cash Flows provided by Operating Activities:

       

Purchases of long-term investments

      $(18,963,559)

Proceeds from sales of long-term investments

      22,027,238

Interest received

      7,189,828

Net cash provided by swap transactions

      3,158,264

Operating expenses paid

      (2,555,734)

Net increase in short-term investments

      (7,543,959)

Net cash provided by operating activities*

      3,312,078
 

Cash Flows used for Financing Activities:

       

Increase in reverse repurchase agreements

      (2,171,012)

Cash dividends paid (excluding reinvestment of dividends of $69,699)

      (4,700,671)

Increase in dividends payable

      479

Cash overdraft to custodian

      3,331,152

Net cash used for financing activities

      (3,540,052)

Net decrease in cash

      (227,974)

Cash at beginning of period

      227,974

Cash at end of period

     
 
Reconciliation of Net Decrease in Net Assets Resulting from Investment Operations to Net Cash Provided by Operating Activities:        

Net decrease in net assets resulting from investment operations

      (10,615,735)

Increase in receivable for investments sold

      (1,014,111)

Decrease in interest receivable

      92,021

Increase in premium for swaps purchased

      (216,335)

Decrease in premium for swaps sold

      (8,166,630)

Increase in receivable for swaps sold

      (774,981)

Increase in prepaid expenses

      (5,046)

Decrease in investment manager fees payable

      (161,785)

Increase in net unrealized depreciation on swaps

      13,204,884

Decrease in payable for reverse repurchase agreement

      (245,854)

Increase in accrued expenses

      25,761

Net decrease in investments

      11,189,889

Net cash provided by operating activities

      $3,312,078
* Included in operating expenses is cash paid for interest on reverse repurchase agreements of $1,473,530.

 

See accompanying Notes to Financial Statements   6.30.08   PCM Fund, Inc. Semi-Annual Report   15


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies

 

Effective June 1, 2007, the Fund’s name changed from the PIMCO Commercial Mortgage Securities Trust, Inc. to PCM Fund, Inc. PCM Fund, Inc. (the “Fund”) commenced operations on September 2, 1993. The Fund is registered under the Investment Company Act of 1940 (the “Act”), as amended, as a closed-end, non-diversified, management investment company organized as a Maryland corporation. Allianz Global Investors Fund Management LLC (the “Investment Manager”) serves as the Fund’s investment manager and is an indirect wholly-owned subsidiary of Allianz Global of America LP (“Allianz Global”). Allianz Global is an indirect, majority-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. The Fund has an unlimited amount of $0.00001 par value common stock authorized.

 

The Fund’s primary investment objective is to achieve high current income by investing in a portfolio comprised primarily of commercial mortgage-backed securities. These securities are fixed income instruments representing an interest in mortgage loans on commercial real estate properties such as office buildings, shopping malls, hotels, apartment buildings, nursing homes and industrial properties. Capital gains from the disposition of investments is a secondary objective of the Fund.

 

In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been asserted. However, the Fund expects the risk of any loss to be remote.

 

The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.

 

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (the “Interpretation”). The Interpretation establishes for all entities, including pass-through entities such as the Fund, 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. Fund management has determined that its evaluation of the Interpretation has resulted in no material impact to the Fund’s financial statements at June 30, 2008.

 

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about a fund’s derivative and hedging activities. Fund management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund’s financial statement disclosures.

 

The following is a summary of significant accounting policies followed by the Fund:

 

(a) Valuation of Investments

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Portfolio securities and other financial instruments for which market quotations are not readily available or if a development/event occurs that may significantly impact the value of a security, are fair valued, in good faith, pursuant to guidelines established by the Board of Directors, or person acting at their discretion pursuant to guidelines established by the Board of Directors, including certain fixed income securities which may be valued with reference to securities whose prices are more readily available. The Fund’s investments, including over-the-counter options, are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the last quoted mean price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales. 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

 

16   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies (continued)

 

characteristics. Exchange traded options, futures and options on futures are valued at the settlement price determined by the relevant exchange. 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 61st day prior to maturity, if the original term to maturity exceeded 60 days. The prices used by the Fund to value securities may differ from the value that would be realized if the securities were sold and these differences could be material to the financial statements. The Fund’s net asset value is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.

 

(b) Fair Value Measurement

Effective January 1, 2008, the Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of the fair value measurements. The three levels of the fair value hierarchy under SFAS 157 are described below:

 

   

Level 1 – quoted prices in active markets for identical investments

   

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

   

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

The valuation techniques used by the Fund to measure fair value during the six months ended June 30, 2008 maximized the use of observable inputs and minimized the use of unobservable inputs. The Fund utilized the following fair value techniques: multi-dimensional relational pricing model and option adjusted spread pricing.

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

The following is a summary of the inputs used at June 30, 2008 in valuing the Fund’s investments carried at value:

 

Valuation Inputs   Investments in
Securities
  Other
Financial
Instruments
 

Level 1 – Quoted Prices

  $   $  

Level 2 – Other Significant Observable Inputs

    194,390,095     (289,131 )

Level 3 – Significant Unobservable Inputs

    2,789,689     (955,435 )
             

Total

  $ 197,179,784   $ (1,244,566 )
             

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   17


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies (continued)

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) at June 30, 2008, were as follows:

 

     Investments in
Securities
    Other
Financial
Instruments
 

Beginning balance, 12/31/07

  $ 3,984,768     $  

Net purchases (sales) and settlements

    (298,111 )      

Accrued discounts (premiums)

    2,426        

Total realized and unrealized gain (loss)

    (276,229 )     (955,435 )

Transfers in and/or out of Level 3

    (623,165 )      
               

Ending balance, 6/30/08

  $ 2,789,689     $ (955,435 )
               

 

(c) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date for financial reporting purposes. Securities purchased or 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 the identified cost basis. Interest income is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized to interest income over the lives of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Paydown gains and losses on mortgage-related and other asset-backed securities are recorded as interest income on the Statement of Operations.

 

(d) Federal Income Taxes

The Fund intends to distribute all of its taxable income and to comply with the other requirements of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required.

 

(e) Dividends and Distributions

The Fund declares dividends from net investment income monthly to shareholders. Distributions of net realized capital gains, if any, are paid at least annually. The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. 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 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 of paid-in capital in excess of par.

 

(f) Option Transactions

The Fund may purchase and write (sell) put and call options for hedging purposes, risk management purposes or as a part of its investment strategy. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by the premiums paid. The proceeds from the securities sold through the exercise of put options are decreased by the premiums paid.

 

When an option is written, the premium received is recorded as an asset with an equal liability and is subsequently marked to market to reflect the current market value of the option written. These liabilities are reflected as options written in the Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised

 

18   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies (continued)

 

are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transactions, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing a security at a price different from the current market value.

 

(g) Interest Rate/Credit Default Swaps

The Fund enters into interest rate and credit default swap contracts (“swaps”) for investment purposes, to manage its interest rate and credit risk or to add leverage. As a seller in the credit default swap contract, the Fund would be required to pay the notional amount or other agreed-upon value of a referenced debt obligation to the counterparty in the event of a default by a third party, such as a U.S. or foreign corporate issuer, on the referenced debt obligation. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. Such periodic payments are accrued daily and recorded as realized gain (loss).

 

The Fund may also purchase credit default swap contracts in order to hedge against the risk of default of debt securities held, in which case the Fund would function as the counterparty referenced in the preceding paragraph. As a purchaser of a credit default swap contract, the Fund would receive the notional amount or other agreed upon value of a referenced debt obligation from the counterparty in the event of default by a third party, such as a U.S. or foreign corporate issuer on the referenced obligation. In return, the Fund would make periodic payments to the counterparty over the term of the contract provided no event of default has occurred. Such periodic payments are accrued daily and recorded as realized gain (loss).

 

Interest rate swap agreements involve the exchange by the Fund with a counterparty of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Net periodic payments received by the Fund are included as part of realized gain (loss) and or change in unrealized appreciation/depreciation on the Statement of Operations.

 

Swaps are marked to market daily based upon quotations from brokers or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Fund’s Statement of Operations. For a credit default swap sold by the Fund, payment of the agreed upon amount made by the Fund in the event of default of the referenced debt obligation is recorded as the cost of the referenced debt obligation purchased/received. For a credit default swap purchased by the Fund, the agreed upon amount received by the Fund in the event of default of the referenced debt obligation is recorded as proceeds from sale/ delivery of the referenced debt obligation and the resulting gain or loss realized on the referenced debt obligation is recorded as such by the Fund.

 

Entering into swaps involves, to varying degrees, elements of credit, market and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in net interest rates.

 

(h) Repurchase Agreements

The Fund enters into transactions with its custodian bank or securities brokerage firms whereby it purchases securities under agreements to resell at an agreed upon price and date (“repurchase agreements”). Such agreements are carried at the contract amount in the financial statements. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, are held by the

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   19


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies (continued)

 

custodian bank until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Fund require that the market value of the collateral, including accrued interest thereon, is 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 Fund may be delayed or limited.

 

(i) Reverse Repurchase Agreements

In a reverse repurchase agreement, the Fund sells securities to a bank or broker-dealer and agrees to repurchase the securities at a mutually agreed upon date and price. Generally, the effect of such a transaction is that the Fund can recover and reinvest all or most of the cash invested in the 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 Fund of the reverse repurchase transaction is less than the returns it obtains on investments purchased with the cash. Unless the Fund covers its positions in reverse repurchase agreements (by segregating liquid assets at least equal in amount to the forward purchase commitment), its obligations under the agreements will be subject to the Fund’s limitations on borrowings. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities that the Fund is obligated to repurchase under the agreement 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 Fund’s 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 Fund’s obligation to repurchase the securities.

 

(j) Mortgage-Related and Other Asset-Backed Securities

The Fund may invest in mortgage-related or other asset-backed securities. These 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 Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. 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.

 

One type of SMBSs has one class receiving all or a portion of the interest from the mortgage assets (the interest-only, or “IO” and/or the high coupon rate with relatively low principal amount, or “IOette” class), while the other class will receive all of the principal (the principal-only, or “PO” class). Payments received for IOs and IOettes are included in interest income on the Statement of Operations. Because little to no principal will be received at the maturity of an IO or IOettes, adjustments are made to the book value of the security on a daily basis until maturity.

 

These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

 

(k) 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 (i.e., 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

 

20   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

1. Organization and Significant Accounting Policies (continued)

 

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.

 

(l) Custody Credits on Cash Balances

The Fund benefits from an expense offset arrangement with its custodian bank whereby uninvested cash balances earn credits which reduce monthly custodian and accounting agent expenses. Had these cash balances been invested in income producing securities, they would have generated income for the Fund.

 

2. Investment Manager/Sub-Adviser

The Fund has entered into an Investment Management Agreement (the “Agreement”) with the Investment Manager. Subject to the supervision of the Fund’s Board of Directors, the Investment Manager is responsible for managing, either directly or through others selected by it, the Fund’s investment activities, business affairs and administrative matters. Pursuant to the Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.80% of the Fund’s average daily total managed assets. Total managed assets refers to the total assets of the Fund (including assets attributable to any reverse repurchase agreements and borrowings), minus accrued liabilities (other than liabilities representing reverse repurchase agreements and borrowings).

 

The Investment Manager has retained its affiliate, Pacific Investment Management Company LLC (the “Sub-Adviser”), to manage the Fund’s investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Fund’s investment decisions. The Investment Manager and not the Fund, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.

 

Prior to April 24, 2008, the Sub-Adviser served as investment manager and administrator to the Fund and received annual fees, payable quarterly of 0.725% and 0.10% of the Fund’s average weekly net assets for investment management and administrative services, respectively.

 

3. Investment in Securities

For the six months ended June 30, 2008, purchases and sales of investments, other than short-term securities and U.S. government obligations, were $18,812,709 and $15,226,897, respectively.

 

(a) Credit default swaps contracts outstanding at June 30, 2008:

 

Swap Counterparty/

Referenced Debt Issuer

  Notional Amount
Payable on Default
(000)
  Termination
Date
  Payments
Received
(Paid) by
Fund
    Unrealized
Depreciation
 

Bear Stearns:

       

Home Equity Index

  $ 1,000   8/25/37   0.15 %   $ (301,354 )

Home Equity Index

    1,000   1/25/38   1.92 %     (267,733 )

Home Equity Index

    1,000   5/25/46   0.17 %     (374,835 )

Credit Suisse First Boston:

       

ABS Home Equity Index

    3,500   8/25/37   0.15 %     (694,739 )

Home Equity Index

    1,479   7/25/45   0.18 %     (53,857 )

Deutsche Bank:

       

AIG

    2,000   3/20/13   2.10 %     (4,312 )

JPMorgan Chase:

       

Lennar

    1,000   12/20/12   5.40 %     (45,761 )

Windstream

    2,000   6/20/12   1.05 %     (96,558 )

Lehman Brothers:

       

ABX

    1,000   7/25/45   0.54 %     (13,830 )
             
        $ (1,852,979 )
             

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   21


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

3. Investment in Securities (continued)

 

(b) Interest rate swap agreements outstanding at June 30, 2008:

 

Swap Counterparty   Notional Amount
(000)
  Termination
Date
  Rate Type  

Unrealized

Appreciation
(Depreciation)

 
      Payments Made
by Fund
  Payments Received
by Fund
 

Bank of America

  $ 4,300   12/17/38   3-Month USD-LIBOR   5.70%   $ (140,347 )

Bank of America

    1,100   12/17/38   5.70%   3-Month USD-LIBOR     (13,441 )

Barclays Bank

    17,900   12/17/18   6-Month Australian
Bank Bill
  7.00%     (136,956 )

Barclays Bank

    7,700   6/21/26   3-Month USD-LIBOR   4.00%     648,131  

Barclays Bank

    1,300   12/20/26   3-Month USD-LIBOR   4.00%     (122,196 )

Citigroup

    2,800   12/17/15   3-Month USD-LIBOR   5.00%     (21,659 )

Citigroup

    4,200   12/17/18   5.00%   3-Month USD-LIBOR     (4,751 )

Morgan Stanley

    17,050   12/17/18   4.38%   3-Month USD-LIBOR     106,544  

Royal Bank of Scotland

    7,600   12/17/15   5.00%   3-Month USD-LIBOR     (12,847 )

Royal Bank of Scotland

    62,900   2/25/18   5.639%   3-Month GBP-LIBOR     (612,504 )

Royal Bank of Scotland

    62,900   2/25/18   6-Month GBP-LIBOR   4.84%     1,363,640  

UBS

    4,200   12/20/26   BRL-CDI-Compounded   10.575%     (444,978 )
               
          $ 608,636  
               

 

The Fund received $750,000 par value in U.S. Treasury Bills as collateral for swap contracts.

 

BRL – Brazilian Real

GBP – British Pound

LIBOR – London Interbank Offered Rate

CDI – Inter-Bank Deposit Certificate

 

(c) The weighted average daily balance of reverse repurchase agreements outstanding during the six months ended June 30, 2008, was $80,587,589, at a weighted average interest rate of 3.61%.

 

Counterparty   Rate     Trade Date   Maturity Date   Principal & Interest   Par

Credit Suisse:

  2.99 %   5/30/08   7/30/08   $ 20,170,467   $ 20,117,000
  3.25 %   6/30/08   7/31/08     2,568,232     2,568,000

Deutsche Bank:

  2.45 %   6/12/08   7/14/08     7,040,091     7,031,000
  2.45 %   6/18/08   7/14/08     547,484     547,000
  2.50 %   6/16/08   7/30/08     1,301,354     1,300,000
  2.65 %   6/13/08   6/14/10     762,259     761,250
  2.93 %   6/18/08   7/23/08     1,906,015     1,904,000
  3.15 %   6/30/08   7/31/08     648,057     648,000

Lehman Brothers:

  2.00 %   6/19/08   6/18/10     393,387     393,125
  2.45 %   6/12/08   7/14/08     225,291     225,000
  2.63 %   6/18/08   7/23/08     3,548,360     3,545,000
  2.68 %   6/30/08   7/31/08     1,668,124     1,668,000
  2.98 %   6/30/08   7/31/08     10,384,860     10,384,000
  3.08 %   6/30/08   7/31/08     522,045     522,000
  3.18 %   6/30/08   7/31/08     813,072     813,000
  3.25 %   5/01/08   4/30/10     139,765     139,000
  3.28 %   6/30/08   7/31/08     7,372,672     7,372,000
  3.48 %   6/30/08   7/31/08     3,550,343     3,550,000
  3.98 %   6/30/08   7/31/08     477,053     477,000

 

22   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

3. Investment in Securities (continued)

 

Counterparty   Rate     Trade Date   Maturity Date   Principal & Interest   Par

Merrill Lynch:

  2.83 %   6/30/08   7/31/08   7,046,554   $ 7,046,000
  2.88 %   6/30/08   7/31/08   1,024,082     1,024,000
  2.93 %   6/30/08   7/31/08   1,847,150     1,847,000
  3.04 %   6/30/08   7/31/08   87,007     87,000

Morgan Stanley:

  2.88 %   4/15/08   4/15/10   3,588,955     3,567,020
             
          $ 77,535,395
             

 

Details of underlying collateral for open reverse repurchase agreements at June 30, 2008, as reflected in the schedule of investments:

 

Counter Party   Description   Rate     Maturity Date   Par   Market Value

Credit Suisse:

  Banc of America Commercial Mortgage, Inc.   5.41 %   9/10/47   $ 2,000,000   $ 1,903,261
 

Banc of America Commercial Mortgage, Inc.

  7.22 %   4/15/36     1,500,000     1,567,962
 

Bear Stearns Alt-A Trust

  5.47 %   7/25/35     395,341     296,459
 

Bear Stearns Alt-A Trust

  6.12 %   5/25/36     480,843     390,908
 

Bear Stearns Asset Backed Securities Trust

  5.50 %   12/25/35     427,703     388,305
 

Bear Stearns Commercial Mortgage Securities Trust

  5.69 %   6/11/50     2,000,000     1,889,108
 

Bear Stearns Commercial Mortgage Securities Trust

  5.90 %   6/11/40     2,000,000     1,906,724
 

Citigroup/Deutsche Bank Commercial Mortgage Trust

  5.40 %   7/15/44     1,015,000     876,066
 

Commercial Mortgage Pass Through Certificates

  6.83 %   2/14/34     2,893,000     2,993,567
 

Countrywide Alternative Loan Trust

  6.00 %   11/25/35     463,431     375,577
 

Credit Suisse Mortgage Capital Certificates

  5.90 %   4/25/36     500,000     382,449
 

Credit Suisse Mortgage Capital Certificates

  6.50 %   5/25/36     413,753     343,995
 

CS First Boston Mortgage Securities Corp.

  5.55 %   12/15/36     2,600,000     2,090,542
 

CS First Boston Mortgage Securities Corp.

  7.17 %   5/17/40     1,250,000     1,296,823
 

First Horizon Alternative Mortgage Securities

  5.38 %   8/25/35     501,132     357,510
 

Greenwich Capital Commercial Funding Corp.

  5.44 %   3/10/39     2,000,000     1,867,603
 

GS Mortgage Securities Corp. II

  5.56 %   11/10/39     5,750,000     5,515,603
 

Host Marriot Pool Trust

  8.31 %   8/3/15     2,000,000     2,080,415
 

Morgan Stanley Capital I

  5.45 %   2/12/44     2,000,000     1,861,524
 

Residential Asset Securitization Trust

  6.00 %   3/25/37     965,747     854,674
 

TBW Mortgage

  6.00 %   7/25/36     461,447     373,941

Deutsche Bank:

  CCO Holdings LLC   8.75 %   11/15/13     500,000     462,500
 

Cincinnati Bell, Inc.

  8.38 %   1/15/14     500,000     486,250
 

Commercial Mortgage Pass Through Certificates

  6.59 %   7/16/34     1,500,000     1,423,920
 

Fannie Mae

  5.24 %   6/1/23     1,417,493     1,386,020
 

Fannie Mae

  5.59 %   8/1/26     97,538     98,399
 

Fannie Mae

  6.11 %   7/1/12     4,680,187     4,903,136
 

Fannie Mae

  7.00 %   10/1/33     548,045     574,352
 

Fannie Mae

  8.00 %   7/1/09     39,174     39,593
 

Fannie Mae

  8.00 %   7/25/22     128,408     138,383
 

Fannie Mae

  8.50 %   9/1/22     243,712     266,176

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   23


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

3. Investment in Securities (continued)

 

Counter Party   Description   Rate     Maturity Date   Par   Market Value
 

Fannie Mae

  8.50 %   4/1/30   $ 44,476   $ 48,989
 

Fannie Mae

  8.50 %   6/1/30     47,156     51,954
 

Fannie Mae

  8.50 %   11/1/30     40,431     44,433
 

Fannie Mae

  8.50 %   1/1/31     38,552     42,368
 

Fannie Mae

  8.50 %   4/1/32     66,614     73,191
 

Fannie Mae

  9.38 %   4/1/16     152,310     169,829
 

Freddie Mac

  5.26 %   4/1/32     203,864     204,255
 

Freddie Mac

  6.20 %   11/1/29     321,761     324,653
 

Freddie Mac

  6.53 %   3/1/32     47,930     48,521
 

Freddie Mac

  6.84 %   8/1/30     187,783     187,922
 

Freddie Mac

  7.00 %   6/1/16     42,228     44,361
 

Freddie Mac

  7.00 %   3/1/31     105,081     110,999
 

Freddie Mac

  7.00 %   10/1/31     37,233     39,367
 

Freddie Mac

  7.00 %   8/1/32     601,302     635,164
 

Intelsat Bermuda Ltd.

  9.25 %   6/15/16     1,000,000     1,012,500
 

SemGroup L.P.

  8.75 %   11/15/15     500,000     487,500
 

Verso Paper Holdings LLC

  9.13 %   8/1/14     800,000     786,000

Lehman Brothers:

  Archer-Daniels-Midland Co.   6.45 %   1/15/38     1,000,000     1,007,216
 

Banc of America Commercial Mortgage, Inc.

  5.92 %   4/11/36     915,766     846,130
 

Banc of America Commercial Mortgage, Inc.

  7.22 %   4/15/36     1,000,000     1,045,308
  Banc of America Commercial Mortgage, Inc.   7.94 %   11/15/31     2,800,000     2,867,943
 

Bear Stearns Commercial Mortgage Securities, Inc.

  7.00 %   5/20/30     1,536,124     1,631,587
  Bon-Ton Stores, Inc.   10.25 %   3/15/14     500,000     330,625
  Carey Commercial Mortgage Trust   5.97 %   9/20/19     1,294,482     1,287,494
  Chase Commercial Mortgage Securities Corp.   6.48 %   2/12/16     1,000,000     1,025,404
  Commercial Mortgage Asset Trust   6.98 %   1/17/32     2,500,000     2,624,947
  Credit Suisse Mortgage Capital Certificates   5.47 %   9/15/39     2,500,000     2,381,145
  Credit Suisse Mortgage Capital Certificates   5.47 %   9/15/39     2,500,000     2,381,145
  CS First Boston Mortgage Securities Corp.   0.44 %   12/15/35     23,729,690     781,181
  CS First Boston Mortgage Securities Corp.   7.00 %   2/25/33     315,581     317,903
  CS First Boston Mortgage Securities Corp.   7.17 %   5/17/40     1,750,000     1,815,552
  CS First Boston Mortgage Securities Corp.   7.46 %   1/17/35     2,000,000     2,047,968
  CVS Lease Pass Through   5.88 %   1/10/28     1,886,476     1,829,120
  Fannie Mae   5.00 %   2/15/36     365,129     288,591
  Fannie Mae   5.00 %   11/25/35     456,926     398,389
  Fannie Mae   7.00 %   10/15/22     506,546     513,278
  Fannie Mae   7.88 %   11/1/18     17,690     19,036
  Fannie Mae   8.00 %   6/1/15     21,627     22,826
  Fannie Mae   8.50 %   9/1/21     37,761     40,620
  Fannie Mae   8.50 %   11/15/21     479,382     519,900
  Fannie Mae   9.00 %   3/25/20     246,854     276,813
  First Union-Lehman Brothers-Bank of America   6.78 %   11/18/35     2,000,000     2,077,873
  Freddie Mac   6.53 %   3/1/32     153,166     155,058
  GE Capital Commercial Mortgage Corp.   5.31 %   5/10/43     1,000,000     796,387

 

24   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

3. Investment in Securities (continued)

 

Counter Party   Description   Rate     Maturity Date   Par   Market Value
  General Motors Acceptance Corp. LLC   6.00 %   9/15/08   $ 180,000   $ 177,460
  GMAC Commercial Mortgage Securities, Inc.   6.50 %   5/15/35     2,500,000     2,511,454
  GMAC Commercial Mortgage Securities, Inc.   8.32 %   9/15/35     1,500,000     1,546,545
  Green Tree Financial Corp.   6.22 %   3/1/30     479,013     432,045
  Green Tree Financial Corp.   6.81 %   12/1/27     403,711     392,860
  GSMPS Mortgage Loan Trust   8.00 %   9/19/27     1,184,690     1,208,662
  Hilton Hotel Pool Trust   0.60 %   10/3/15     30,748,903     452,676
 

JPMorgan Chase Commercial Mortgage Securities Corp.

  6.16 %   5/12/34     2,000,000     2,040,925
  LB Commercial Conduit Mortgage Trust   6.00 %   10/15/35     3,800,000     3,771,641
  Morgan Stanley Capital I   7.21 %   12/15/31     200,000     201,812
  Morgan Stanley Capital I   7.56 %   4/30/39     918,948     873,000
  NGPL PipeCo LLC   7.77 %   12/15/37     1,000,000     1,052,395
  Residential Accredit Loans, Inc.   6.00 %   8/25/35     924,250     841,526
  Wachovia Bank Commercial Mortgage Trust   0.26 %   10/15/41     47,053,565     816,182

Merrill Lynch:

 

Bear Stearns Commercial Mortgage Securities, Inc.

  5.82 %   5/14/16     1,500,000     1,530,354
  GS Mortgage Securities Corp. II   6.62 %   2/14/16     3,500,000     3,706,657
 

JPMorgan Chase Commercial Mortgage Securities Corp.

  6.47 %   11/15/35     3,000,000     3,084,847
  Merrill Lynch Mortgage Investors, Inc.   7.08 %   12/15/30     1,500,000     1,488,401
  Merrill Lynch Mortgage Investors, Inc.   7.38 %   2/15/30     159,030     159,102
  TrizecHahn Office Properties   7.60 %   5/15/16     3,000,000     2,869,981

Morgan Stanley:

  Dynegy Holdings, Inc.   7.125 %   5/15/18     500,000     437,500
  Echostar DBS Corp.   7.125 %   2/1/16     500,000     463,750
  Ford Motor Credit Co. LLC   8.00 %   12/15/16     500,000     364,282
  HCA, Inc.   6.75 %   7/15/13     1,250,000     1,103,125
  HCA, Inc.   9.25 %   11/15/16     600,000     619,500
  NRG Energy, Inc.   7.25 %   2/1/14     350,000     335,125
  Tenneco Automotive, Inc.   8.625 %   11/15/14     750,000     665,625
             
          $ 106,180,622
             

 

4. Income Tax Information

The cost basis of portfolio securities of $215,795,932 is substantially the same for both federal income tax purposes and financial reporting purposes. Aggregated gross unrealized appreciation for securities in which there is an excess value over tax cost is $2,538,155; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $21,154,303; net unrealized depreciation for federal income tax purposes is $18,616,148.

 

5. Subsequent Dividend Declarations

On July 1, 2008, a dividend of $0.07 per share was declared to shareholders payable August 1, 2008 to shareholders of record on July 11, 2008.

 

On August 1, 2008, a dividend of $0.07 per share was declared to shareholders payable September 2, 2008 to shareholders of record on August 11, 2008.

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   25


Table of Contents

PCM Fund, Inc. Notes to Financial Statements

June 30, 2008 (unaudited)

    

 

6. Legal Proceedings

 

In June and September 2004, the Investment Manager, and certain of its affiliates (including Allianz Global Investors Distributors LLC (“AGID”), PEA Capital LLC (“ PEA”) and Allianz Global Investors of America L.P. agreed to settle, without admitting or denying the allegations, claims brought by the Securities and Exchange Commission and the New Jersey Attorney General alleging violations of federal and state securities laws with respect to certain open-end funds for which the Investment Manager serves as investment adviser. The settlements related to an alleged “market timing” arrangement in certain open-end funds formerly sub-advised by PEA. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims. In addition to monetary payments, the settling parties agreed to undertake certain corporate governance, compliance and disclosure reforms related to market timing, and consented to cease and desist orders and censures. Subsequent to these events, PEA deregistered as an investment adviser and dissolved. None of the settlements alleged that any inappropriate activity took place with respect to the Fund.

 

Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in a number of pending lawsuits concerning “market timing,” which allege the same or similar conduct underlying the regulatory settlements proceedings discussed above. The market timing lawsuits have been consolidated in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland. Any potential resolution of these matters may include, but not be limited to, judgments or settlements for damages against the Investment Manager or its affiliates or related injunctions.

 

The Investment Manager and the Sub-Adviser believe that these matters are not likely to have a material adverse effect on the Fund or on their ability to perform their respective investment advisory activities relating to the Fund.

 

The foregoing speaks only as of the date hereof.

 

7. Appointment of New Director

In May 2008, the Fund’s Board of Directors appointed Diana L. Taylor as a Director.

 

26   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

 

PCM Fund, Inc. Financial Highlights      

For a share outstanding throughout each period:

        Six Months
ended
June 30, 2008
(unaudited)
        Year ended December 31,  
              2007         2006         2005         2004             2003  

Net asset value, beginning of period

    $11.28       $11.85       $11.94       $12.49       $12.53         $12.80  

Investment Operations:

                                   

Net investment income (1)

    0.44       0.80       0.90       0.98       1.01         1.09  

Net realized and change in unrealized gain (loss) on investments, futures contracts and swaps

    (1.37 )     (0.48 )     0.14       (0.40 )     0.08         (0.23 )

Total from investment operations

    (0.93 )     0.32       1.04       0.58       1.09         0.86  

Dividends to Shareholders from Net investment income

    (0.42 )     (0.89 )     (1.13 )     (1.13 )     (1.13 )       (1.13 )

Net asset value, end of period

    $9.93       $11.28       $11.85       $11.94       $12.49         $12.53  

Market price, end of period

    $10.10       $10.25       $14.40       $14.03       $13.17         $14.53  

Total Investment Return (2)

    2.68 %     (23.17 )%     11.17 %     15.40 %     (1.62 )%       9.76 %

RATIOS/SUPPLEMENTAL DATA:

                                     

Net assets, end of period (000)

    $112,776       $128,092       $134,259       $134,792       $140,267         $139,891  

Ratio of expenses to average net assets, including interest expense

    3.71 %*     4.03 %     3.69 %     2.77 %     1.75 %       1.52 %

Ratio of expenses to average net assets, excluding interest expense

    1.19 %*     1.08 %     1.03 %     1.07 %     1.00 %       1.05 %

Ratio of net investment income to average net assets

    8.62 %*     6.94 %     7.64 %     8.00 %     8.09 %       8.62 %

Portfolio turnover

    8 %     17 %     21 %     8 %     24 %       40 %

 

* Annualized
(1) Per share amounts based on average number of shares outstanding during the period.
(2) Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day and a sale of a share of common stock at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized.

 

See accompanying Notes to Financial Statements   6.30.08   PCM Fund, Inc. Semi-Annual Report   27


Table of Contents
PCM Fund, Inc. Matters Relating to the Directors Consideration of the Investment Management and Portfolio Management Agreement     

 

 

The Investment Company Act of 1940, as amended (the “1940 Act”) requires that both the full Board of Directors (the “Directors”) and a majority of the non-interested (“Independent”) Directors, voting separately, approve the Fund’s Investment Management Agreement with Allianz Global Investors Fund Management LLC (“AGIFM”) and the Portfolio Management Agreement between AGIFM and Pacific Investment Management Company LLC (“PIMCO”). On February 25, 2008, the Board of Directors of the Fund, including a majority of the Independent Directors, approved the Fund’s Investment Management Agreement and Portfolio Management Agreement (together, the “Agreements”). The information, material factors and conclusions that formed the basis for the Board’s approval are described below.

 

1. Information Received

 

A. Materials Reviewed

The Directors received a wide variety of materials relating to the services to be provided by AGIFM and PIMCO. The Board considered information relating to the nature, extent and quality of services to be offered by the AGIFM and PIMCO. The Directors also considered matters relating to fund operations, including the Fund’s compliance program, shareholder services, valuation and custody, and other information relating to the nature, extent and quality of services to be provided by AGIFM and PIMCO. In considering whether to approve the Agreements, the Board also reviewed supplementary information, including comparative industry data with regard to investment performance, advisory fees and expenses, financial and profitability information, and information about the personnel who would be providing investment management and administrative services to the Fund.

 

B. Review Process

In connection with the approval of the Agreements, the Board reviewed written materials prepared by AGIFM and PIMCO in response to requests from Fund counsel. The Board also received assistance and advice regarding applicable legal standards from Fund counsel, and reports prepared by AGIFM and PIMCO containing comparative performance and expense ratio information. The Board also heard oral presentations on matters related to the Agreements and met both as a full Board and as the Independent Directors alone, without management present. In deciding to recommend the approval of the Agreements, the Board did not identify any single factor or particular information that, in isolation, was controlling. This summary describes the most important, but not all, of the factors considered by the Board.

 

2. Nature, Extent and Quality of Services

 

A. Personnel and Resources

The Board considered the depth and quality of each of AGIFM’s and PIMCO’s investment management process, including: its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ability of its organizational structure to address the recent growth in assets under management. The Board also considered that PIMCO and AGIFM make available to its investment professionals a variety of resources and systems relating to investment management, compliance, trading, performance and portfolio accounting. The Board considered AGIFM’s and PIMCO’s commitment to investing in information technology supporting investment management and compliance, as well as AGIFM’s and PIMCO’s continuing efforts to attract and retain qualified personnel and to maintain and enhance its resources and systems. The Board also considered that the portfolio management personnel at PIMCO who manage the day-to-day investment decisions for the Fund would continue to do so under the Portfolio Management Agreement.

 

B. Other Services

The Board considered each of AGIFM’s and PIMCO’s policies, procedures and systems to assure compliance with applicable laws and regulations and its commitment to these programs; their anticipated efforts to keep the Directors informed about matters relevant to the Fund and its shareholders; and their attention to matters that may

 

28   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents
PCM Fund, Inc. Matters Relating to the Directors Consideration of the Investment Management and Portfolio Management Agreement     

 

 

involve conflicts of interest with the Fund. The Board also considered the terms of each Agreement, the nature, extent, quality and cost of the services to be provided by AGIFM to the Fund under the Investment Management Agreement, and the nature, extent, quality and cost of the services to be provided by PIMCO to the Fund under the Portfolio Management Agreement. The Board also considered whether the services to be provided under the Agreements would result in better utilization of the management resources offered by AGI and its affiliates and would relieve PIMCO of administrative burdens, thus freeing PIMCO to focus on portfolio management. In addition, the Board considered AGIFM’s ability to monitor and oversee sub-advisers. The Board noted that pursuant to the Investment Management Agreement, the Fund will pay AGIFM one fee for both investment management and administrative services whereas the Fund currently pays a separate investment management fee to PIMCO pursuant to the Current Management Agreement and a separate administrative services fee to PIMCO pursuant to the Current Administrative Services Agreement. The Board further noted that the fee paid to AGIFM pursuant to the Investment Management Agreement for combined investment management and administrative services is higher than the current fee paid to PIMCO for investment management services alone; however, when aggregating the total fees currently payable to PIMCO for both investment management and administrative services, the combined fee to be paid pursuant to the Investment Management Agreement is lower than the total fees currently payable to PIMCO. Ultimately, the Board concluded that the nature, extent and quality of the services to be provided by AGIFM and PIMCO will likely benefit the Fund and its shareholders.

 

3. Investment Performance

The Board received and examined information from PIMCO concerning the Fund’s one-, three-, five- and ten-year performance for the periods ended December 31, 2007. The Board noted that shares of the Fund had generally been trading at a premium for the one-, three-, five- and ten-year periods ended December 31, 2007, with shares trading at a discount during some periods, including the final six months of 2007. The Board also noted that for each of these periods except the one-year period, the Fund had beaten its benchmark index based on its NAV performance, but had generally trailed the benchmark index with respect to market price performance. The Board also noted that the Fund had generally outperformed most of its peer group funds and peer group average based on its NAV performance for these periods, with periods of outperformance and underperformance with respect to its market price for these periods. The Board also noted that the Fund outperformed its peer group average based on NAV performance for the one-, three-, five- and ten-year periods ended December 31, 2007.

 

Overall, the Board determined that the Fund’s investment performance was strong, and concluded that PIMCO’s performance record in managing the Fund indicates that its continued management is likely to benefit the Fund and its shareholders.

 

4. Fees

AGIFM and PIMCO reported to the Board that, in proposing fees for the Fund, they considered a number of factors, including the type and complexity of the services provided, the cost of providing services, the risk assumed by AGIFM and PIMCO in the provision of services, the impact on potential returns from different levels of fees, the competitive marketplace for financial products, and the attractiveness of potential Fund returns to current and potential investors.

 

The Board considered the services to be provided and the fees to be charged under the Agreements. The Board also considered that the Fund was expected to pay lower fees for investment management and administrative services under the Agreement than it currently pays. With respect to overall levels of Fund expenses, the Board observed that bond funds are more fee- and expense-ratio sensitive than equity funds, given the tangible impact of fees and expenses on yield. The Board compared the Fund’s total expenses to other funds in the expense group provided by AGIFM and PIMCO, and found the Fund’s total expenses to be reasonable. The Board noted that the Fund’s expense ratio was lower than certain of the comparative funds presented. AGIFM and PIMCO do not manage any separate accounts with a similar investment strategy to the Fund; therefore the Board could not consider the fees charged by

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   29


Table of Contents
PCM Fund, Inc. Matters Relating to the Directors Consideration of the Investment Management and Portfolio Management Agreement     

 

 

AGIFM and PIMCO to comparable separate accounts. The Board concluded that the proposed advisory and administrative fees were reasonable in relation to the value of the services provided.

 

Based on the information presented by AGIFM and PIMCO, members of the Board then determined, in the exercise of their business judgment, that the level of the advisory and administrative fees to be charged by AGIFM and PIMCO, as well as the total expenses of the Fund, are reasonable and approval of the Agreements will likely benefit the Fund and its shareholders.

 

5. Costs, Level of Profits and Economies of Scale

The Board reviewed information regarding AGIFM’s and PIMCO’s anticipated costs of providing services to the Fund as a whole, as well as the resulting level of anticipated profits to AGIFM and PIMCO, noting that those results were comparable to the reported results of several large publicly held investment management companies. The Board noted that it had also received information regarding the structure and manner in which AGIFM’s and PIMCO’s investment professionals were compensated, and AGIFM’s and PIMCO’s views of the relationship of such compensation to the attraction and retention of quality personnel. The Board considered AGIFM’s and PIMCO’s need to invest in technology, infrastructure and staff to reinforce and offer new services and to accommodate changing regulatory requirements.

 

With respect to potential economies of scale, the Board noted that, as a closed-end fund, the Fund was not expected to materially increase in size. The Board also noted that although neither the Investment Management Agreement nor Portfolio Management Agreement contain breakpoints, advisory agreements for closed-end funds generally do not contain breakpoints.

 

6. Ancillary Benefits

The Board considered other benefits received by AGIFM and PIMCO and their affiliates as a result of AGIFM’s and PIMCO’s relationship with the Fund, including possible ancillary benefits to AGIFM’s and PIMCO’s institutional investment management businesses due to the reputation and market penetration of the Fund. The Board also reviewed AGIFM’s and PIMCO’s soft dollar policies and procedures, noting that AGIFM and PIMCO have adopted policies not to accept soft dollars.

 

7. Conclusion

Based on their review, including their consideration of each of the factors referred to above, the Board concluded that the nature, extent and quality of the services to be rendered to the Fund by AGIFM and PIMCO will likely be excellent and favored approval of the Agreements. The Board concluded that the Agreements are each fair and reasonable to the Fund and its shareholders, that the Fund’s shareholders would receive reasonable value in return for the advisory fees and other amounts paid to AGIFM by the Fund and to PIMCO by AGIFM, and that the approval of the Agreements was in the best interests of the Fund and its shareholders.

 

30   PCM Fund, Inc. Semi-Annual Report   6.30.08


Table of Contents

PCM Fund, Inc. Annual Shareholder Meeting Results/Corporate Change/

 Proxy Voting Policies & Procedures (unaudited)

 

    

 

Annual Shareholder Meeting Results:

The Fund held its annual meeting of shareholders on April 23, 2008, (“Annual Meeting”). Shareholders voted to elect as new Directors of the Fund Hans W. Kertess, Chairman of the Board of Directors, Paul Belica, Robert E. Connor, John J. Dalessandro II, John C. Maney, William B. Ogden, IV and R. Peter Sullivan III as Directors indicated below:

 

          Affirmative  

Withheld

Authority

  Against

Class I Directors:

  to elect John J. Dalessandro II to serve until 2010   10,377,762   289,099   0
  to elect William B. Ogden, IV to serve until 2010   10,383,838   283,023   0

Class II Directors:

  to elect Hans W. Kertess to serve until 2011   10,382,756   284,105   0
  to elect John C. Maney to serve until 2011   10,384,154   282,707   0
  to elect R. Peter Sullivan III to serve until 2011   10,382,838   284,023   0

Class II Directors:

  to elect Paul Belica to serve until 2009   10,376,844   290,017   0
  to elect Robert E. Connor to serve until 2009   10,378,762   288,099   0

 

Also at the Annual Meeting, the Shareholders voted to approve the following other proposals:

 

Proposal 1:

       
  To approve an Investment Management Agreement between the Fund and Allianz Global Investors Fund Management LLC (“AGIFM”).   6,045,935   163,666   157,187

Proposal 2:

       
  Contingent on the approval of Proposal I above, to approve a Portfolio Management Agreement between AGIFM and Pacific Investment Management Company LLC (“PIMCO”)   6,045,102   160,586   161,101

 

Corporte Change:

On April 24, 2008, Allianz Global Investors Fund Management LLC (‘‘AGIFM’’), announced that the majority of shareholders of PCM Fund Inc. (the ‘‘Fund’’), approved to change the Fund’s investment manager from Pacific Investment Management Company LLC (‘‘PIMCO’’) to AGIFM. PIMCO will continue to be the Fund’s portfolio manager and sub-adviser pursuant to a portfolio management agreement between PIMCO and AGIFM. PCM shareholders also elected new directors to the board, each of whom currently serves as a director/trustee of AGIFM’s other sponsored closed-end funds:

 

These changes will not impact the Fund’s investment objective, however the total management fees and administrative fees paid by the Fund will be lower.

 

 

 

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 Fund’s shareholder servicing agent at (800) 331-1710; (ii) on the Fund’s website at www.allianzinvestors.com/closedend funds; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

 

  
6.30.08   PCM Fund, Inc. Semi-Annual Report   31


Table of Contents

 

 

Directors and Principal Officers

Hans W. Kertess

Director, Chairman of the Board of Directors

 

Brian S. Shlissel

President & Chief Executive Officer

Paul Belica

Director

 

Lawrence G. Altadonna

Treasurer, Principal Financial & Accounting Officer

Robert E. Connor

Director

 

Thomas J. Fuccillo

Vice President, Secretary & Chief Legal Officer

John J. Dalessandro II

Director

 

Scott Whisten

Assistant Treasurer

John C. Maney

Director

 

Richard J. Cochran

Assistant Treasurer

William B. Ogden, IV

Director

 

Youse E. Guia

Chief Compliance Officer

R. Peter Sullivan III

Director

 

William V. Healey

Assistant Secretary

Diana L. Taylor

Director

 

Richard H. Kirk

Assistant Secretary

 

Kathleen A. Chapman

Assistant Secretary

 

Lagan Srivastava

Assistant Secretary

Investment Manager

Allianz Global Investors Fund Management LLC

1345 Avenue of the Americas,

New York, NY 10105

Sub-Adviser

Pacific Investment Management Company LLC

840 Newport Center Drive

Newport Beach, CA 92660

Custodian & Accounting Agent

State Street Bank & Trust Co.

801 Pennsylvania

Kansas City, MO 64105-1307

Transfer Agent, Dividend Paying Agent and Registrar

PNC Global Investment Servicing

P.O. Box 43027

Providence, RI 02940-3027

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

300 Madison Avenue

New York, NY 10017

Legal Counsel

Ropes & Gray LLP

One International Place

Boston, MA 02110-2624

This report, including the financial information herein, is transmitted to the shareholders of PCM Fund, Inc. for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.

 

The financial information included herein is taken from the records of the Fund without examination of an independent registered public accounting firm, who did not express an opinion thereon.

 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase shares of its common stock in the open market.

 

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarter of its fiscal year on Form N-Q. The Fund’s Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Fund’s website at www.allianzinvestors.com/closedendfunds.

 

On May 30, 2008, the Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Fund’s principal executive officer certified that he was not aware, as of the date, of any violation by the Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive and principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting, as applicable.

 

Information on the Fund is available at www.allianzinvestors.com/closedendfunds or by calling the Fund’s shareholder servicing agent at (800) 331-1710.

 

6.30.08   PCM Fund, Inc. Semi-Annual Report  


Table of Contents

LOGO

 

 


Table of Contents
ITEM 2. CODE OF ETHICS

Not required in this filing.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

Not required in this filing.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not required in this filing.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT

Not required in this filing.

 

ITEM 6. SCHEDULE OF INVESTMENTS

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not required in this filing.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not required in this filing.

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED COMPANIES

 

PERIOD

   TOTAL
NUMBER OF
SHARES
PURCHASED
   AVERAGE
PRICE PAID
PER SHARE
   TOTAL NUMBER OF
SHARES PURCHASED
AS PART OF PUBLICLY
ANNOUNCED PLANS
OR PROGRAMS
   MAXIMUM NUMBER OF
SHARES THAT MAY YET BE
PURCHASED UNDER THE PLANS
OR PROGRAMS

January 2008

   N/A      N/A    N/A    N/A

February 2008

   N/A      N/A    N/A    N/A

March 2008

   N/A      N/A    N/A    N/A

April 2008

   N/A    $ 9.91    2,472    N/A

May 2008

   N/A    $ 10.32    2,261    N/A

June 2008

   N/A    $ 10.35    2,113    N/A


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ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Registrant’s Board of Directors adopted a Nominating Committee Charter governing the affairs of the Nominating Committee of the Board, which is posted on the Allianz Investors website at www.allianzinvestors.com. Appendix B to the Nominating Committee Charter includes “Procedures for Shareholders to Submit Nominee Candidates,” which sets forth the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors. Among other requirements, the procedures provide that the recommending shareholder must submit any recommendation in writing to the Registrant to the attention of the Registrant’s Secretary, at the address of the principal executive offices of the Registrant and that there have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.

 

ITEM 11. CONTROLS AND PROCEDURES

(a) The registrant’s President and Chief Executive Officer and Treasures, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-3(c))), as amended are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no significant changes in the registrant’s control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants control over financial reporting.

 

ITEM 12. EXHIBITS

 

(a) (1) Exhibit 99.302 Cert. - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant) PCM Fund, Inc.

By

 

/s/    Brian S. Shlissel

  President and Chief Executive Officer

Date September 5, 2008

By

 

/s/    Lawrence G. Altadonna

  Treasurer, Principal Financial & Accounting Officer

Date September 5, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By

 

/s/    Brian S. Shlissel

  President and Chief Executive Officer

Date September 5, 2008

By

 

/s/    Lawrence G. Altadonna

  Treasurer, Principal Financial & Accounting Officer

Date September 5, 2008