<PAGE>
The Board of Directors
WILLIAM G. McGAGH*, Chairman
RONALD J. ARNAULT+
JOHN E. BRYSON*
ANITA L. DE FRANTZ+
RONALD L. OLSON*
WILLIAM E. B. SIART*
LOUIS A. SIMPSON+
Officers PACIFIC
JAMES W. HIRSCHMANN AMERICAN
President INCOME
SCOTT F. GRANNIS SHARES, INC.
Vice President SEMI-ANNUAL
ILENE S. HARKER REPORT
Vice President 2000
S. KENNETH LEECH
Vice President
STEPHEN A. WALSH
Vice President
STEVEN T. SARUWATARI
Treasurer
BRIAN M. EAKES
Assistant Treasurer
MARIE K. KARPINSKI
Assistant Treasurer
LISA G. HATHAWAY
Secretary
INVESTMENT ADVISER
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
TRANSFER AGENT
EquiServe, L.L.P.
P.O. Box 8200
Boston, Massachusetts 02266-8200
*Member of Executive Committee
+Member of Audit Committee
PACIFIC
AMERICAN
INCOME
SHARES, INC.
P.O. BOX 983
PASADENA
CALIFORNIA 91105
PACAM-SEMI-00
<PAGE>
Dear Shareholders:
Market Review and Performance
The first half of 2000 proved to be yet another difficult period for the
corporate bond market. Although Y2K turned into a nonevent, the Federal Reserve
mounted an aggressive campaign to rein in the economy's growth, raising short-
term interest rates by a full percentage point and increasing credit risk in the
process. Separately, Treasury announced that mounting budget surpluses would be
used to sharply reduce the supply of long-term Treasury debt, thus increasing
demand for government securities and contributing to the first inversion of the
Treasury yield curve -- wherein yields on longer-term issues are lower than
yields on shorter-term issues -- in over 10 years. The combination of these
forces contributed to push Treasury yields down while corporate yields traded
mixed to generally higher; this in turn resulted in the corporate market
returning lackluster performance compared to government securities. Although
lower quality issues were generally impacted to a greater extent by spread
widening, emerging market securities bucked the trend, delivering mixed price
performance but very generous yields.
Despite the headwinds of rising interest rates, the Pacific American portfolio
recorded a positive total return (price gains/losses plus interest income, net
of expenses) of 2.30% for the period, compared to 1.88% for its BBB Corporate
Debt peer group as reported by Lipper Analytical Services. The Fund's share
price appreciated from $11.875 at the end of December to $12.688 at the end of
June, but the Fund's NAV experienced a modest decline, from $14.54 to $14.36.
The consequent reduction in the share price discount to NAV appears to reflect
improved sentiment in the bond market during the period.
I'm again very pleased to note that the Fund's competitive record remains
excellent: for the period ending June 30, 2000, PAI ranked number 1 (out of a
total of 15 funds) for the past one, five, and ten years, and number 2 for the
past three and fifteen years in the Lipper Analytical Services' group of closed-
end investment grade bond funds.
Economic Outlook
Recent economic data indicate the U.S. economy is finally slowing in response
to tight monetary policy. Signs of weakness are emerging in key interest rate-
sensitive sectors such as housing and durable goods, as well as in earnings
disappointments for
1
<PAGE>
banks and consumer staples manufacturers. Moreover, softer demand and tight
labor markets are reflected in a noticeable deceleration in the growth of
private sector employment this year. With tight money limiting firms' ability to
pass along higher input prices, recent hikes in energy costs are acting like a
tax on economic activity, accentuating the monetary slowdown already underway.
A near-term "soft landing" scenario thus appears likely, leaving the Fed on
hold pending further indications of the economy's health. Though the risks of a
"hard landing" are not insignificant, we anticipate that a strong dollar, low
inflation, technology-driven productivity, ongoing investment in the U.S.
economy and the improving prospects for significant tax cuts will continue to
provide a foundation for healthy growth and minimal inflation pressures in the
years to come. And of course, since the slowdown is most likely monetary-
induced, a hard landing could be easily addressed by lower interest rates, much
as occurred in response to the global financial crisis experienced two years
ago.
Strategy
These conditions imply little if any change in portfolio strategy. We will
continue to place an emphasis on longer maturities in an attempt to lock in
today's attractive yields. The outlook for corporate bonds remains quite
attractive, but economic slowdown risks call for broad diversification and
careful attention to the balance between risk and reward. For example, we
continue to believe that a moderate and well-diversified exposure to dollar-
denominated emerging market debt from major issuers can enhance the portfolio's
yield without adding unduly to overall credit risk, especially when compared to
domestic high-yield bonds with similar credit ratings which currently offer
similar or lower overall yields.
On balance and over time, we expect that the portfolio will benefit handsomely
from a decline in interest rates to levels that are more commensurate with
today's benign inflation environment. In addition, we believe that today's
unusually wide spreads in corporate, emerging market and mortgage debt are
unlikely to persist, and that they also will return to levels more commensurate
with what appear to be reasonably healthy economic fundamentals. In the
meantime, the portfolio offers a dividend yield that appears unusually
attractive relative to current low-inflation fundamentals.
2
<PAGE>
Dividend Policy
Thanks to positive investment results and somewhat higher market yields, we
anticipate maintaining the recently increased quarterly dividend at its 26.5c
rate for the next six months. Our next review of market conditions and earnings
results will take place in January, at which time we will make adjustments to
this rate if necessary. Above all, it is our objective to deliver as high and as
stable a dividend payout as is possible, consistent with our projections of the
portfolio's earnings ability.
As always, we remain dedicated to delivering the highest level of value for
our shareholders. Please don't hesitate to share with us any concerns you might
have.
Sincerely,
/s/ James W. Hirschmann
-----------------------
James W. Hirschmann
President
3
<PAGE>
Pacific American Income Shares, Inc.
Statistical Highlights (Amounts in Thousands, except per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
------------- ------------
<S> <C> <C>
Net Asset Value $134,832 $136,485
Per Share $14.36 $14.54
Net Investment Income $5,122 $9,939
Per Share $0.55 $1.06
Dividends Paid $4,883 $9,859
Per Share $0.52 $1.05
Capital Gains Paid $-- $328
Per Share $-- $.04
</TABLE>
--------------------------------------------------------------------------------
The Company
--------------------------------------------------------------------------------
Pacific American Income Shares, Inc. (the "Company") is a closed-end,
diversified management investment company which seeks for its shareholders a
high level of current income through investment in a diversified portfolio of
debt securities. Substantially all of the net investment income is distributed
to the shareholders. A Dividend Reinvestment Plan is available to those
shareholders of record desiring it. The shares are listed on the New York Stock
Exchange where they are traded under the symbol PAI, and price quotations can be
found in publications under the abbreviation PacAmShrs.
--------------------------------------------------------------------------------
Investment Policies
--------------------------------------------------------------------------------
The Company's fundamental investment policies provide that its portfolio be
invested as follows:
[ ] At least 75% in debt securities rated within the four highest grades, and in
government securities, bank debt, commercial paper, cash or cash
equivalents.
[ ] Up to 25% in other fixed income securities, convertible bonds, convertible
preferred and preferred stock.
[ ] Not more than 25% in securities restricted as to resale.
--------------------------------------------------------------------------------
Dividend Reinvestment Plan
--------------------------------------------------------------------------------
A Dividend Reinvestment Plan is available to all shareholders of record of the
Company. For participants in the Plan, cash dividends and other distributions
are automatically reinvested in additional shares of the Company's stock. These
shares are purchased on the open market. Interested shareholders may obtain more
information by contacting the Dividend Reinvestment Agent, EquiServe, L.L.P.,
P.O. Box 8200, Boston, MA 02266-8200.
4
<PAGE>
Pacific American Income Shares, Inc.
Portfolio Diversification June 30, 2000
--------------------------------------------------------------------------------
BY RATING*
(At Market Value)
[GRAPH APPEARS HERE]
A 14.6%
AA 3.1%
AAA 18.8%
Short-Term Securities 6.3%
Not Rated 3.2%
B 6.7%
BB 17.7%
BBB 29.6%
BY SECTOR*
(At Market Value)
0.9% MORTGAGE-BACKED SECURITIES
2.5% U.S. GOVERNMENT AND AGENCY OBLIGATIONS
6.3% SHORT-TERM SECURITIES
15.5% U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
31.9% YANKEE BONDS
42.9% CORPORATE BONDS AND NOTES
| | | | | | | | | |
---------------------------------------------------------------
0 5 10 15 20 25 30 35 40 45
*EXPRESSED AS A PERCENTAGE OF THE PORTFOLIO
5
<PAGE>
Pacific American Income Shares, Inc.
Schedule of Investments June 30, 2000 (Unaudited) (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Securities -- 93.5%
Corporate Bonds and Notes -- 42.8%
Aerospace/Defense -- 4.9%
Lockheed Martin Corporation 9.000% 1/15/22 $ 2,500 $ 2,693
Northrop Grumman Corporation 9.375% 10/15/24 2,000 1,921
Raytheon Company 6.750% 8/15/07 420 394
Raytheon Company 6.400% 12/15/18 2,000 1,644
--------
6,652
--------
Automotive -- 1.0%
Ford Motor Company 7.700% 5/15/97 1,500 1,394
--------
Banking and Finance -- 7.7%
Abbey National Capital Trust I 8.963% 12/29/49 270 269/F/
Ace Ina Holding Inc. 8.300% 8/15/06 2,000 2,019
Credit Suisse First Boston 7.900% 5/1/07 3,000 2,784/B,F/
IBJ Preferred Capital Corp. LLC 8.790% 12/29/49 1,360 1,234/B,F/
J.P. Morgan Capital Trust 7.950% 2/1/27 150 133
Morgan Stanley Dean Witter & Co. 6.750% 10/15/13 2,700 2,422
SB Treasury Company LLC 9.400% 12/29/49 1,530 1,495/B,F/
--------
10,356
--------
Building Materials -- 0.4%
American Standard Companies, Inc. 8.250% 6/1/09 500 482
Nortek, Inc. 8.875% 8/1/08 80 73
--------
555
--------
Cable -- 1.5%
Century Communications Corp. 8.875% 1/15/07 1,000 912
CSC Holdings Inc. 8.125% 7/15/09 70 68
Price Communications Wireless Inc. 9.125% 12/15/06 875 875
TCI Communications Inc. 8.750% 8/1/15 160 171
--------
2,026
--------
Chemicals -- 0.4%
Dow Chemical Company 7.375% 11/1/29 210 204
Lyondell Chemical Company 9.875% 5/1/07 375 371
--------
575
--------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer Services and Systems -- 1.4%
Electronic Data Systems Corporation 7.450% 10/15/29 $ 2,000 $ 1,908
--------
Construction and Machinery -- 0.3%
Terex Corporation 8.875% 4/1/08 424 384
--------
Energy -- 4.0%
Edison Mission Energy 7.730% 6/15/09 1,500 1,461
Sithe Independence Funding Corporation 9.000% 12/30/13 4,000 3,994
--------
5,455
--------
Environmental Services -- 1.8%
Safety-Kleen Corp. 9.250% 5/15/09 800 23/E/
Waste Management Inc. 7.375% 5/15/29 3,000 2,461
--------
2,484
--------
Food, Beverage and Tobacco -- 1.9%
J. Seagram & Sons 7.600% 12/15/28 200 191
R.J. Reynolds Tobacco Holdings, Inc. 7.750% 5/15/06 1,010 900
R.J. Reynolds Tobacco Holdings, Inc. 7.875% 5/15/09 1,680 1,449
--------
2,540
--------
Gaming -- 0.8%
Horseshoe Gaming Holdings, Inc. 8.625% 5/15/09 54 51
Mohegan Tribal Gaming Authority 8.125% 1/1/06 1,000 955
--------
1,006
--------
Gas and Pipeline Utilities -- 0.4%
Occidental Petroleum Corporation 8.450% 2/15/29 500 512
--------
Insurance (Life/Health) -- 1.1%
Conseco, Inc. 8.500% 10/15/02 930 674
Conseco, Inc. 8.750% 2/9/04 1,070 744
--------
1,418
--------
</TABLE>
7
<PAGE>
Pacific American Income Shares, Inc.
Schedule of Investments (Continued) (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance (Multi-Line) -- 3.1%
Loews Corporation 7.625% 6/1/23 $ 1,242 $ 1,099
Loews Corporation 7.000% 10/15/23 1,000 822
Safeco Capital Trust I 8.072% 7/15/37 2,750 2,337
--------
4,258
--------
Media -- 4.1%
News America Holdings Incorporated 6.750% 1/9/38 930 852
News America Incorporated 8.875% 4/26/23 1,325 1,369
Time Warner Inc. 9.150% 2/1/23 3,000 3,257
--------
5,478
--------
Real Estate -- 0.1%
Socgen Real Estate Co. LLC 7.640% 12/29/49 150 137/B,F/
--------
Services -- 0.9%
Fuji Co., Ltd. 9.870% 12/31/49 1,250 1,207/B,F/
--------
Telecommunications -- 2.5%
AT&T Corp. 9.650% 3/31/27 3,000 3,314
NEXTLINK Communications, Inc. 10.750% 6/1/09 30 30
PSINet Inc. 10.500% 12/1/06 70 65
PSINet Inc. 11.000% 8/1/09 15 14
--------
3,423
--------
Transportation -- 0.2%
Burlington Northern Santa Fe Corporation 6.375% 12/15/05 240 225
--------
Utilities -- 4.3%
Gulf States Utilities Corp. 8.250% 4/1/04 3,200 3,228
PNPP II Funding Corporation 9.120% 5/30/16 2,459 2,511
--------
5,739
--------
Total Corporate Bonds and Notes (Identified Cost -- $60,525) 57,732
-----------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities -- 0.9%
Fixed-Rate Securities -- 0.9%
Nomura Asset Securities Corporation 7.120% 4/13/36 1,170 1,152
--------
Variable-Rate Securities -- N.M.
Glendale Federal Savings Bank 9.125% 1/25/08 68 68/C/
--------
Total Mortgage-Backed Securities (Identified Cost -- $1,235) 1,220
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Agency Obligations -- 2.5%
Fixed-Rate Securities -- 2.5%
United States Treasury Bonds 8.000% 11/15/21 $ 2,470 $ 2,986
United States Treasury Notes 6.125% 8/15/07 210 209
United States Treasury Notes 6.000% 8/15/09 110 109
--------
Total U.S. Government and Agency Obligations (Identified Cost -- $3,232) 3,304
-----------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-Backed Securities -- 15.5%
Fixed-Rate Securities -- 15.5%
Fannie Mae 8.000% 4/25/06 1,068 1,076
Fannie Mae 10.500% 7/1/09 129 136
Fannie Mae 7.250% 1/15/10 1,100 1,111
Fannie Mae 13.500% 5/1/12 to 86 95
10/1/17
Fannie Mae 6.000% 4/1/14 23 22
Fannie Mae 14.500% 6/1/17 61 67
Fannie Mae 14.000% 9/1/17 to 836 916
2/1/18
Fannie Mae 11.500% 11/1/17 440 467
Fannie Mae 13.250% 3/1/18 172 189
Fannie Mae 7.000% 7/1/29 1,504 1,454
Freddie Mac 6.250% 7/15/04 4,000 3,889
Freddie Mac 10.250% 5/1/09 137 142
Freddie Mac 11.875% 6/15/13 194 199
Freddie Mac 6.500% 2/1/29 6,677 6,310
Government National Mortgage Association 12.250% 3/20/14 57 61
Government National Mortgage Association 9.000% 9/15/19 60 63
Government National Mortgage Association 7.000% 8/15/25 to 4,095 3,983
6/15/28
Government National Mortgage Association 6.500% 8/15/28 93 88
Government National Mortgage Association 6.000% 12/15/28 644 593
--------
Total U.S. Government Agency Mortgage-Backed Securities
(Identified Cost -- $21,484) 20,861
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Pacific American Income Shares, Inc.
Schedule of Investments (Continued) (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Yankee Bonds/A/ -- 31.8%
Banking and Finance -- 10.0%
Cho Hung Bank Co. Ltd 11.875% 4/1/10 $ 2,000 1,930/B,F/
Hanvit Bank 12.750% 3/1/10 2,000 1,980/B,F/
Korea Exchange Bank 13.750% 6/30/10 2,000 1,993/B/
PDVSA Finance Limited 1998-1 7.400% 8/15/16 2,000 1,567
PDVSA Finance Limited 1999-K 9.950% 2/15/20 2,000 1,840
Petrozuata Finance, Inc. 7.630% 4/1/09 500 422/B/
Petrozuata Finance, Inc. 8.220% 4/1/17 1,740 1,344/B/
Royal Bank of Scotland Group plc 8.817% 3/31/49 1,000 1,031
The Bank of Tokyo-Mitsubishi, Ltd. 8.400% 4/15/10 1,400 1,414
--------
13,521
--------
Diversified Services -- 1.2%
Rothmans Nederland Holdings BV 6.875% 5/6/08 1,800 1,568
--------
Food, Beverage and Tobacco -- 2.0%
Imperial Tobacco Overseas BV 7.125% 4/1/09 3,000 2,660
--------
Foreign Governments -- 9.2%
Argentine Republic 11.375% 3/15/10 930 848
Argentine Republic 9.750% 9/19/27 630 491
Federative Republic of Brazil 8.000% 4/15/14 874 644
Province of Manitoba 9.500% 9/15/18 730 876
Quebec Province 7.220% 7/22/36 980 991
Republic of Bulgaria 7.063% 7/28/11 640 513/D/
Republic of Colombia 9.750% 4/23/09 410 361
Republic of Panama 7.063% 7/17/16 612 504/D/
Republic of the Philippines 9.875% 1/15/19 400 325
Republic of the Philippines 9.500% 10/21/24 480 447
Republic of Turkey 11.875% 1/15/30 400 425
United Mexican States 10.375% 2/17/09 1,980 2,109
United Mexican States 11.500% 5/15/26 3,210 3,852
Vnesheconombank 7.938% 12/15/15 150 46/D/
--------
12,432
--------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oil and Gas -- 2.1%
Petroliam Nasional Berhad 7.125% 8/15/05 $ 150 $ 143/B/
Petroliam Nasional Berhad 7.750% 8/15/15 1,640 1,500/B/
Petroliam Nasional Berhad 7.625% 10/15/26 1,290 1,118/B/
--------
2,761
--------
Steel (Producers) -- 2.1%
Pohang Iron & Steel Company Ltd. 7.375% 5/15/05 3,000 2,894
--------
Telecommunications -- 3.4%
Deutsche Telekom International Finance BV 8.250% 6/15/30 2,000 1,999
Telefonica de Argentina SA 11.875% 11/1/04 2,500 2,625
--------
4,624
--------
Utilities -- 1.8%
Tata Electric Company 8.500% 8/19/17 3,000 2,459/B/
--------
Total Yankee Bonds (Identified Cost -- $44,392) 42,919
--------
Total Long-Term Securities (Identified Cost -- $130,868) 126,036
-----------------------------------------------------------------------------------------------------------------------------
Short-Term Securities -- 6.3%
U.S. Government Agency Mortgage-Backed Securities -- N.M.
Freddie Mac 10.750% 7/1/00 1 1
--------
Yankee Bonds/A/ -- 2.2%
Korea Electric Power Corporation 10.000% 4/1/01 3,000 3,052
--------
</TABLE>
11
<PAGE>
Pacific American Income Shares, Inc.
Schedule of Investments (Continued) (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 4.1%
Merrill Lynch Government Securities, Inc.
6.55%, dated 6/30/00, to be repurchased
at $5,500 on 7/3/00 (Collateral: $5,610
Freddie Mac medium-term note, 7.184%,
due 1/14/10, value $5,695) $ 5,497 $ 5,497
--------
Total Short-Term Securities (Identified Cost -- $8,543) 8,550
--------------------------------------------------------------------------------------------------------------------
Total Investments -- 99.8% (Identified Cost -- $139,411) 134,586
Other Assets Less Liabilities -- 0.2% 246
--------
Net assets -- 100.0% $134,832
========
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Yankee Bond -- A dollar-denominated bond issued in the U.S. by foreign
entities.
/B/ Rule 144a Security -- A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers. These securities represent 14.64% of net
assets.
/C/ The coupon rates shown on variable rate securities are the rates at June 30,
2000.
/D/ Indexed Security -- The rate of interest on this type of security is tied to
the London Interbank Offered Rate (LIBOR). The coupon rate is the rate as of
June 30, 2000.
/E/ Bond is in default at June 30, 2000.
/F/ Stepped coupon security -- A security with a predetermined schedule of
interest or dividend rate changes.
N.M. -- Not meaningful.
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Pacific American Income Shares, Inc.
Statement of Assets and Liabilities June 30, 2000 (Unaudited) (Amounts in Thousands)
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment securities at market value (cost $130,868) $126,036
Short-term securities at market value (cost $8,543) 8,550
--------
Total investments $134,586
Receivable for accrued interest 2,307
Collateral for securities loaned 9,651
Other assets 14
--------
146,558
LIABILITIES:
Payable for investments purchased 1,999
Obligation to return collateral for securities loaned 9,651
Accrued expenses 76
--------
11,726
--------
NET ASSETS -- equivalent to $14.36 per share on
9,389 shares of common stock outstanding $134,832
========
SUMMARY OF STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share: authorized
20,000 shares; 9,389 issued and outstanding shares $ 94
Additional paid-in capital 142,585
Under/(over) distributions of net investment income 324
Accumulated net realized loss on investments (3,346)
Unrealized depreciation of investments (4,825)
--------
Net assets applicable to outstanding common stock $134,832
========
</TABLE>
---------
See notes to financial statements.
13
<PAGE>
Pacific American Income Shares, Inc.
Statement of Operations (Unaudited) (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 2000
------------------------
<S> <C>
INVESTMENT INCOME:
Interest income $ 5,656
EXPENSES:
Advisory fee 360
Custodian fee 45
Transfer agent and
shareholder servicing expense 37
Audit and legal fees 18
Directors' fees and expenses 40
Registration fees 8
Reports to shareholders 18
Taxes, other than federal income taxes 20
-------
546
Less fees waived (12)
-------
Total expenses, net of waivers 534
-------
Net investment income 5,122
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments (757)
Unrealized depreciation of investments (1,135)
-------
Net realized and unrealized gain/(loss) on investments (1,892)
-------
Change in net assets resulting from operations $ 3,230
=======
</TABLE>
__________
See notes to financial statements.
14
<PAGE>
Pacific American Income Shares, Inc.
Statement of Changes in Net Assets (Amounts in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Operations:
Net investment income $ 5,122 $ 9,939
Net realized gain/(loss) on investments and
foreign currency contracts (757) (2,054)
Increase/(decrease) in unrealized appreciation of
investments and foreign currency contracts (1,135) (7,316)
-------- --------
Change in net assets resulting from operations 3,230 569
Distributions to shareholders from:
Net investment income (4,883) (9,859)
Net realized gain/(loss) on investments -- (328)
-------- --------
(4,883) (10,187)
-------- --------
Total increase/(decrease) (1,653) (9,618)
Net assets:
Beginning of period 136,485 146,103
-------- --------
End of period (includes undistributed net investment
income of $324 and $85, respectively) $134,832 $136,485
======== ========
</TABLE>
__________
See notes to financial statements.
15
<PAGE>
Pacific American Income Shares, Inc.
Financial Highlights
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding throughout each year, total investment return, ratios to
average net assets and other supplemental data.
<TABLE>
<CAPTION>
For the Six For the Years Ended December 31,
Months Ended --------------------------------------------------------
June 30, 2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $14.54 $15.56 $16.11 $15.77 $16.27 $14.30
------ ------ ------ ------ ------ ------
Net investment income .55 1.06 1.04 1.14 1.14 1.18
Net realized and unrealized gain/
(loss) on investments (.21) (.99) (.06) .76 (.16) 1.99
------ ------ ------ ------ ------ ------
Total from investment operations .34 .07 .98 1.90 .98 3.17
------ ------ ------ ------ ------ ------
Distributions paid from:
Net investment income (.52) (1.05) (1.18) (1.18) (1.18) (1.20)
Net realized gain/(loss) on
investments -- (.04) (.35) (.38) (.30) --
------ ------ ------ ------ ------ ------
Total distributions (.52) (1.09) (1.53) (1.56) (1.48) (1.20)
------ ------ ------ ------ ------ ------
Net asset value, end of period $14.36 $14.54 $15.56 $16.11 $15.77 $16.27
====== ====== ====== ====== ====== ======
Market value per share, end of period $12.69 $11.88 $15.75 $16.25 $14.375 $15.25
====== ====== ====== ====== ======= ======
TOTAL RETURN:
Based on market value per share 11.21%/A/ (18.39)% 6.61% 24.73% 4.16% 25.92%
RATIOS TO AVERAGE NET ASSETS:
Expenses .80%/B/ .76% .76% .71% .72% .81%
Net investment income 7.64%/B/ 7.07% 6.54% 7.11% 7.22% 7.62%
SUPPLEMENTAL DATA:
Portfolio turnover rate 63%/B/ 242% 378% 201% 326% 132%
Net assets at end of period
(in thousands) $134,832 $136,485 $146,103 $150,139 $146,979 $151,627
</TABLE>
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/A/ Not annualized.
/B/ Annualized.
See notes to financial statements.
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Pacific American Income Shares, Inc.
Notes to Financial Statements (Unaudited) (Amounts in Thousands)
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NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Pacific American Income Shares, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. The significant accounting policies of the Company, which
are in accordance with generally accepted accounting principles, include the
following:
(a) Cash -- Cash includes demand deposits held with the Company's custodian
and does not include short-term investments.
(b) Investments -- Security transactions are recorded on the trade date.
Investment securities owned at June 30, 2000, are reflected in the
accompanying Schedule of Investments at their value on June 30, 2000. In
valuing portfolio securities, securities listed or traded on a national
securities exchange are valued at the last sales price. Each security traded
in the over-the-counter market, including listed debt securities whose primary
market is believed to be over-the-counter, is generally valued at the mean of
the bid and asked prices at the time of computation. Prices are obtained from
at least two dealers regularly making a market in the security, unless such
prices can be obtained from only a single market maker. The difference between
cost and market value is reflected separately as unrealized appreciation or
depreciation of investments. Short-term securities are generally stated at
cost plus interest earned, which approximates market value.
The net realized gain or loss on investment transactions is determined for
federal income tax and financial reporting purposes on the basis of identified
cost. Purchases and sales of securities other than short-term and U.S.
Government securities for the six months ended June 30, 2000, aggregated
$30,011 and $29,038, respectively. Purchases and sales of U.S. Government
securities for the six months ended June 30, 2000, were $10,939 and $14,358,
respectively. As of June 30, 2000, unrealized net depreciation for federal
income tax and financial reporting purposes aggregated $4,825, of which $1,243
related to appreciated securities and $6,068 related to depreciated
securities. The aggregate cost of investment securities owned for federal
income tax purposes was $139,411 at June 30, 2000. Unused capital loss
carryforwards for federal income tax purposes at June 30, 2000, were $2,308,
which expire in 2007.
(c) Recognition of income, expense and distributions to shareholders -- The
Company accrues interest income and expenses on a daily basis. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with federal income tax
regulations, which may differ from those determined in accordance with
generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Company's capital accounts to reflect
income and gains available for distribution under federal income tax
regulations.
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Pacific American Income Shares, Inc.
Notes to Financial Statements (Continued) (Amounts in Thousands)
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(d) Federal income taxes -- No provision for federal income or excise taxes
has been made in the accompanying financial statements because the Company
intends to distribute to its shareholders substantially all of its taxable net
income and realized capital gains, and otherwise comply with the Internal
Revenue Code provisions applicable to regulated investment companies.
(e) Use of estimates -- Preparation of the financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
(f) Foreign currency translation -- The books and records of the Company
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the closing daily rate of exchange; and
(ii) purchases and sales of investment securities, interest income and
expenses at the rate of exchange prevailing on the respective dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains or losses is reflected as a component of such gains
or losses.
NOTE 2 -- INVESTMENT ADVISORY AGREEMENT AND AFFILIATED PERSONS
The Company has entered into an investment advisory agreement with Western
Asset Management Company ("Adviser"), which is a wholly owned subsidiary of Legg
Mason, Inc., pursuant to which the Adviser provides investment advice and
administrative services to the Company. In return for its advisory services, the
Company pays the Adviser a monthly fee at an annual rate of 0.7% of the average
monthly net assets of the Company up to $60,000 and 0.4% of such net assets in
excess of $60,000. If expenses (including the Adviser's fee but excluding
interest, taxes, brokerage fees, the expenses of any offering by the Company of
its securities, and extraordinary expenses beyond the control of the Company)
borne by the Company in any fiscal year exceed 1.5% of average net assets up to
$30,000 and 1% of average net assets over $30,000, the Adviser will reimburse
the Company for any excess. No expense reimbursement is due for the six months
ended June 30, 2000.
On April 17, 1998, the Adviser entered into an investment subadvisory
agreement with Western Asset Management Company Limited ("WAML") to provide the
Company with investment research, advice, management and supervision and a
continuous investment program for the Company's portfolio of non-dollar
securities consistent with the Company's investment objectives and policies. As
compensation, the Adviser will pay WAML a fee based on the pro rata assets of
the Company managed by WAML during the month.
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NOTE 3 -- SECURITIES LOANED
The Company lends its securities to approved brokers to earn additional income
and receives cash and U.S. Government securities as collateral against the
loans. Cash collateral received is invested in a money market pooled account by
the Company's lending agent. Collateral is maintained over the life of the loan
in an amount not less than 100% of the value of loaned securities. At June 30,
2000, the market value of the securities on loan to broker-dealers was $9,244,
for which the Company received collateral of $9,651 in cash. Such collateral is
in the possession of the Company's custodian. As with other extensions of
credit, the Company may bear the risk of delay in recovery or even loss of
rights to the collateral should the borrower of the securities fail financially.
NOTE 4 -- FORWARDCURRENCYEXCHANGECONTRACTS
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Company as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Company records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Company's securities, but it does establish a
rate of exchange that can be achieved in the future. These forward foreign
currency contracts involve market risk in excess of amounts reflected in the
financial statements. Although forward foreign currency contracts used for
hedging purposes limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Company could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
their contracts. The Adviser will enter into forward foreign currency contracts
only with parties approved by the Board of Directors because there is a risk of
loss to the Company if the counterparties do not complete the transaction.
At June 30, 2000, there were no open forward currency exchange contracts.
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