NEWPORT BEACH, Calif., Nov. 1, 2002 (PRIMEZONE) -- PIMCO Strategic Global Government Fund, Inc. (NYSE:RCS) today released its investment performance results and statistical portfolio information for the period July 1, 2002, through September 30, 2002 (third quarter).
PIMCO Strategic Global Government Fund, Inc. ("RCS" or the "Fund") is a closed-end, intermediate-term bond fund that invests principally in investment-grade government securities of the United States and other countries. The primary investment objective of the Fund is to generate over time a level of income higher than that generated by high-quality, intermediate-term U.S. debt securities. Pacific Investment Management Company LLC ("PIMCO"), an investment adviser with more than $301.7 billion of assets under management as of September 30, 2002, is responsible for managing the Fund's investment portfolio.
Investment Performance, Price and Dividend Information
The Fund's valuation and investment performance information are as follows:
Total Return Investment Performance
Periods Ended Based on Based on
9/30/02 NYSE Share Price Net Asset Value
Third quarter 6.33% 1.10%
One year 22.58% 7.88%
Three years (annualized) 21.58% 10.26%
Five years (annualized) 11.76% 7.54%
The Fund's total return investment performance is net of all fees and expenses and assumes the reinvestment of dividends. For comparison purposes, the Lehman Brothers Intermediate Aggregate Index, a broad market measure of domestic fixed income performance, rose 3.79%, 7.91%, 9.11% and 7.62% for the three months, one year, three years and five years ended September 30, 2002, respectively (3 and 5 year numbers are annualized).
Price Information
Pricing Date NYSE Share Price Net Asset Value
September 30, 2002 $12.00 $11.10
June 30, 2002 $11.51 $11.20
September 30, 2001 $10.71 $11.32
Premium/(Discount) to Net Asset Value
September 30, 2002 8.11%
June 30, 2002 2.77%
September 30, 2001 -5.39%
Dividend Information
Regular monthly dividend per share: $0.074
Total dividends declared in the quarter: $0.222
Annualized dividend yield at 9/30/02
based on NYSE share price: 7.40%
Annualized dividend yield at 9/30/02
based on net asset value: 8.00%
Portfolio Statistics
The Fund's investment portfolio had the following characteristics as
of September 30, 2002:
Net Assets: $382.7mm
Average Duration: 2.82 years
Average Maturity: 3.49 years
Quality Ratings: 64% AAA, 19% AA, 1% A, 4% BBB,
7% BB, 4% B, 1% less than B
Average Quality: AAA
Sector Weightings: 81% Mortgage-Backed (70% FNMA, 4% GNMA,
6% FHLMC, 1% Other), 9% Emerging Markets
(2% Brazil, 1% Russia, 1% Ecuador, 1% Mexico,
1% Bulgaria, 1% Panama, 1% Peru, 1% South
Korea) 21% Cash and Equivalents, -11% U.S.
Treasury/Agency
Market Commentary
Mortgage-backed securities gained in the third quarter as investors sought safety in higher quality assets amid fears of sluggish global growth, the integrity of corporate accounting and governance practices and a potential U.S. war with Iraq. The flight to quality moves continued from the second quarter into the third, with Treasuries and mortgages benefiting the most.
While mortgages did not keep pace with the powerful rally in the Treasury market, they were supported by strong crossover demand from the corporate sector. Corporates lagged as a stream of bad news about bankruptcies and credit rating downgrades of high profile issuers reinforced risk aversion among lenders already bruised by accounting scandals.
Treasury yields fell as much as 1.47% during the third quarter, with the 10-year yield plunging to 3.59%, its lowest level in more than 40 years. These low Treasury yields drove mortgage rates down to historically low levels, resulting in a surge of mortgage prepayments. Mortgage rates fell 0.25% in July with current coupon FNMAs hitting a low of 5.80%. Concern about additional supply hitting the market remained a focus as bank buying declined July.
Mortgage rates continued to slide with current coupon FNMAs closing another 0.22% lower at 5.58% in August. The Mortgage Banker's Association Refinancing Index rose to near 2001 highs and supply fears grew worse. The steep yield curve fostered growth in hybrid adjustable rate mortgages (ARM) issuance.
Just when the market thought rates had little room to move lower, they did. Current coupon FNMA's dipped another 0.23% in September to hit an all-time low of 5.35%. The refinancing risk that the market brushed off so casually in the second quarter was impossible to avoid in the third. As a result, mortgage yield premiums widened dramatically. For example, yield premiums on par coupon Fannie Mae's were 0.72% higher in September than their tightest levels in May. Overall, mortgage yield premiums reached their all-time cheapest levels compared to Treasuries and swaps.
Within the mortgage sector, Ginnie Maes (GNMA) outperformed their conventional counterparts and lower coupons outperformed higher coupons. GNMAs, which are explicitly backed by the U.S. government, attracted strong overseas demand amid the flight to quality. Lower coupons are less vulnerable to prepayments than higher coupons and met strong demand as investors attempted to avoid the risk of having their principal returned sooner than anticipated. Early return of principal in a falling rate environment forces investors to reinvest at lower interest rates.
The word "discount" mortgage, meaning a mortgage-backed security trading below par, became a relic of the past in the third quarter, as there were virtually no mortgage pass-throughs trading below $101. Volatility (both implied and realized) at all-time highs, rates at all-time lows and increasing negative convexity were all factors that caused the mortgage sector to cheapen. However, on a total return basis, the mortgage sector still delivered positive performance due to its yield advantage.
Emerging market bonds declined 1.10% for the third quarter, as measured by the JP Morgan EMBI+ Index, resulting in flat year-to-date performance with returns of -0.3%. In addition to the recent upturn in volatility related to the election cycle in several emerging markets, recent weakness is largely a reflection of the fluid external environment that has impacted most competing asset classes to an even greater extent.
The third quarter saw a continuation of last quarter's market pessimism and a reversal of expectations for a robust economic recovery towards year-end. The persistent depression in investor confidence has materially impacted capital flows to the region, as has the generalized retrenchment of banks from credit markets.
The reduction in capital flows was mostly mitigated by increased assistance from international financial institutions (IMF, World Bank, IADB) and the high level of international reserves accumulated over the past several years. The ability on the part of many emerging market economies to withstand the distressed external environment underscores several important relative advantages of the asset class, including healthier balance sheets and mechanisms to offset cyclical private capital rationing. These benefits allow individual country credits to decouple from volatility elsewhere in the asset class, a favorable trend that continued during the third quarter.
Past performance is no guarantee of future results. Investment return, dividend rate and share price will fluctuate so that shares, when sold, may be worth more or less than their original cost.