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 811-10377
PIMCO Municipal Income Fund
(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: April 30, 2007
Date of reporting period: October 31, 2006
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (‘‘OMB’’) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Report to Shareholder
Contents
Letter to Shareholders | 1 |
Performance & Statistics | 2-3 |
Schedules of Investments | 4-16 |
Statements of Assets and Liabilities | 17 |
Statements of Operations | 18 |
Statements of Changes in Net Assets | 19 |
Notes to Financial Statements | 20-25 |
Financial Highlights | 26-27 |
Matters Relating to the Trustees Consideration of the Investment Management & Portfolio Management Agreements |
28-29 |
December 4, 2006
Dear Shareholder:
We are pleased to provide you with the semi-annual report for PIMCO Municipal Income Fund and PIMCO California Municipal Income Fund (the ‘‘PIMCO Municipal Funds’’ or the ‘‘Funds’’) for the six-month period ended October 31, 2006.
After a difficult period, the bond market picked up in the third quarter of 2006 as the economy slowed and expectations grew that the Federal Reserve (the ‘‘Fed’’) might begin easing. In fact, the Fed left rates unchanged at 5.25% at each of its recent meetings, citing weaknesses in the housing sector and falling energy prices. This came after 17 consecutive increases in short-term interest rates over two years. The apparent end of the Fed’s tightening cycle proved to be a positive for the Funds during the second half of the reporting period.
For specific information on the Funds and their 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 Funds’ shareholder servicing agent at (800) 331-1710. You will also find a wide range of information and resources on our Web site, www.allianzinvestors.com/closedendfunds.
Together with Allianz Global Investors Fund Management LLC, the Funds’ investment manager, and Pacific Investment Management Company LLC, the Funds’ sub-adviser, we thank you for investing with us.
Sincerely,
Robert E. Connor Chairman |
Brian S. Shlissel President & Chief Executive Officer |
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10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 1
Management Review
▪ | For the six months ended October 31, 2006, PIMCO Municipal Income Fund increased 6.88% on net asset value (NAV) and 6.79% on market price, compared with 5.66% and 6.10%, respectively, for the Lipper Analytical General Municipal Debt Funds (Leveraged) average. |
▪ | Municipal bonds, as measured by the Lehman Municipal Bond Index, underperformed the broader national market, as measured by the Lehman Aggregate Bond Index, returning 4.12% and 4.60%, respectively, for the six-month period. |
▪ | Municipal bond yields declined across all maturities during the reporting period. For example, 5-, 10-, and 30-year AAA General Obligation yields declined by 21, 35 and 29 basis points, respectively. Note that when a bond’s yield declines, its price rises, and vice versa. |
▪ | Tobacco securitization debt was beneficial to Fund performance during the first half of the reporting period, but it underperformed in the second half due to volatile news from underlying tobacco companies. |
▪ | Exposure to non-callable zero coupon municipals proved positive for performance. |
Total Return(1): | Market Price | Net Asset Value (‘‘NAV’’) | ||||||||
Six months | 6.79% | 6.88% | ||||||||
1 Year | 18.08% | 9.94% | ||||||||
Commencement of Operations (6/29/01) to 10/31/06 | 9.12% | 7.87% | ||||||||
Common Share Market Price/NAV Performance:
Commencement of Operations (6/29/01) to 10/31/06
Market Price/NAV: | ||||||
Market Price | $16.80 | |||||
NAV | $15.03 | |||||
Premium to NAV | 11.78% | |||||
Market Price Yield(2) | 5.80% | |||||
Moody’s Ratings
(as a % of total investments)
(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 income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of more than one year represents the average annual total return. |
An investment in the Fund involves risk, including the loss of principal. Total return, price, yield and net asset value will fluctuate with changes in market conditions. This data is provided for information only and is not intended for trading purposes. A portion of the income generated by the Fund may be subject to federal, state and local taxes, and may at times be subject to the alternative minimum tax. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Net asset value is total assets applicable 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 to common shareholders by the market price per common share at October 31, 2006. |
2 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Management Review
▪ | For the six months ended October 31, 2006, PIMCO California Municipal Income Fund rose 6.86% on net asset value (NAV) and 8.24% on market price, compared with 5.60% and 6.04%, respectively, for the Lipper Analytical California Municipal Debt Funds average. |
▪ | California municipal bonds, as measured by the Lehman California Municipal Bond Index, outperformed the broader national municipal market, as measured by the Lehman Municipal Bond Index, for the six-month reporting period, returning 4.73% and 4.12%, respectively. |
▪ | California municipal bond yields declined across all maturities during the reporting period. For example, 5-, 10-, and 30-year General Obligation yields declined by 26, 32 and 19 basis points, respectively. Note that when a bond’s yield declines, its price rises, and vice versa. |
▪ | California State AAA municipal bond yield declined over the second half of the reporting period. For example, 5-, 10- and 30-year maturities declined by 39, 46 and 45 basis points, respectively. |
Total Return(1): | Market Price | Net Asset Value (‘‘NAV’’) | ||||||||
Six months | 8.24% | 6.86% | ||||||||
1 Year | 17.40% | 10.13% | ||||||||
Commencement of Operations (6/29/01) to 10/31/06 | 8.65% | 7.43% | ||||||||
Common Share Market Price/NAV Performance:
Commencement of Operations (6/29/01) to 10/31/06
Market Price/NAV: | ||||||
Market Price | $16.67 | |||||
NAV | $14.99 | |||||
Premium to NAV | 11.21% | |||||
Market Price Yield(2) | 5.54% | |||||
Moody’s Ratings
(as a % of total investments)
(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 income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of more than one year represents the average annual total return. |
An investment in the Fund involves risk, including the loss of principal. Total return, price, yield and net asset value will fluctuate with changes in market conditions. This data is provided for information only and is not intended for trading purposes. A portion of the income generated by the Fund may be subject to federal, state and local taxes, and may at times be subject to the alternative minimum tax. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Net asset value is total assets applicable 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 to common shareholders by the market price per common share at October 31, 2006. |
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 3
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
MUNICIPAL BONDS & NOTES–93.6% |
||||||||||||||
Alabama–2.9% |
||||||||||||||
$ 2,500 | Birmingham Baptist Medical Centers Special Care Facs. Financing Auth. Rev., 5.875%, 11/15/24, Ser. A | Baa1/NR | $ 2,660,450 | |||||||||||
5,500 | Daphne Special Care Facs. Financing Auth. Rev., zero coupon, 8/15/28, (Pre-refunded @ $100, 8/15/08) (a) | Aaa/AAA | 5,156,415 | |||||||||||
8,000 | Huntsville Health Care Auth. Rev., 5.75%, 6/1/31, Ser. A | A2/NR | 8,515,440 | |||||||||||
16,332,305 | ||||||||||||||
Alaska–1.2% |
||||||||||||||
6,000 | Northern Tobacco Securitization Corp. Rev., 5.50%, 6/1/29, (Pre-refunded @ $100, 6/1/11) (a) | Aaa/AAA | 6,482,280 | |||||||||||
Arizona–1.0% |
||||||||||||||
2,000 | Apache Cnty. Industrial Dev. Auth. Rev., Pollution Control Rev., Tucson Electric Power Co., 5.875%, 3/1/33, Ser. B | Baa3/B+ | 2,009,640 | |||||||||||
3,500 | Salt River Project Agricultural Improvement & Power Dist. Rev., 4.75%, 1/1/35, Ser. A | Aa1/AA | 3,601,990 | |||||||||||
5,611,630 | ||||||||||||||
Arkansas–0.4% |
||||||||||||||
8,500 | Arkansas Dev. Finance Auth. Rev., zero coupon, 7/1/36 (AMBAC) | Aaa/AAA | 2,142,850 | |||||||||||
California–3.9% |
||||||||||||||
10,000 | Golden State Tobacco Securitization Corp., Tobacco Settlement Rev., 6.75%, 6/1/39, Ser. 2003-A-1 | Baa3/BBB | 11,476,700 | |||||||||||
10,000 | Riverside Cnty. Public Financing Auth., Tax Allocation, 4.50%, 10/1/30, Ser. A (XLCA) | Aaa/AAA | 10,065,400 | |||||||||||
21,542,100 | ||||||||||||||
Colorado–2.5% |
||||||||||||||
Denver Health & Hospital Auth. Healthcare Rev., Ser. A, | ||||||||||||||
2,000 | 5.375%, 12/1/28 | Baa3/BBB | 2,029,600 | |||||||||||
1,000 | 6.00%, 12/1/23 | Baa3/BBB | 1,070,650 | |||||||||||
12,400 | Health Facs. Auth. Retirement Facs. Rev., zero coupon, 7/15/24 | NR/AAA | 5,779,268 | |||||||||||
4,965 | Northwest Parkway Public Highway Auth. Rev., 7.125%, 6/15/41, Ser. D | B3/CCC | 5,237,132 | |||||||||||
14,116,650 | ||||||||||||||
Connecticut–0.2% |
||||||||||||||
1,000 | State Dev. Auth. Pollution Control Rev., 5.85%, 9/1/28 | Baa1/BBB− | 1,053,160 | |||||||||||
District of Columbia–1.0% |
||||||||||||||
5,325 | Tobacco Settlement Financing Corp. Rev., 6.25%, 5/15/24 | Baa3/BBB | 5,710,530 | |||||||||||
Florida–1.8% |
||||||||||||||
9,000 | Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System, 6.00%, 11/15/31, Ser. A, (Pre-refunded @ $101, 11/15/11) (a) | A2/A+ | 10,070,190 | |||||||||||
Georgia–2.0% |
||||||||||||||
Municipal Electric Auth. Power Rev. (MBIA-IBC), | ||||||||||||||
9,700 | 5.50%, 1/1/20 | Aaa/AAA | 10,828,789 | |||||||||||
300 | 5.50%, 1/1/20, Ser. Z, (Pre-refunded @ $100, 1/1/13) (a) | Aaa/AAA | 336,795 | |||||||||||
11,165,584 | ||||||||||||||
4 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
Illinois–12.1% |
||||||||||||||
Chicago, GO, Ser. A (FGIC), | ||||||||||||||
$ 2,935 | 5.375%, 1/1/34 | Aaa/AAA | $ 3,056,304 | |||||||||||
6,145 | 5.375%, 1/1/34, (Pre-refunded @ $101, 1/1/09) (a) | Aaa/AAA | 6,436,888 | |||||||||||
10,115 | Chicago Board of Education, GO, zero coupon, 12/1/31, Ser. A (FGIC) | Aaa/AAA | 3,321,665 | |||||||||||
2,000 | Chicago Water Rev., 5.25%, 11/1/27, (Pre-refunded @ $102, 11/1/07) (FGIC) (a) | Aaa/AAA | 2,073,560 | |||||||||||
Educational Facs. Auth. Rev., | ||||||||||||||
1,115 | Midwestern Univ., 5.50%, 5/15/18, Ser. B | NR/A− | 1,148,595 | |||||||||||
Univ. of Chicago, | ||||||||||||||
190 | 5.25%, 7/1/41 | Aa1/AA | 201,079 | |||||||||||
4,810 | 5.25%, 7/1/41, (Pre-refunded @ $101, 7/1/11) (a) | Aa1/AA | 5,192,718 | |||||||||||
Finance Auth. Rev., (Pre-refunded @ $101, 11/15/09) (a), | ||||||||||||||
5,000 | 5.50%, 11/15/29 | A2/A+ | 5,305,100 | |||||||||||
1,260 | 5.65%, 11/15/24 | A2/A+ | 1,342,265 | |||||||||||
Health Facs. Auth. Rev., | ||||||||||||||
3,000 | Decatur Memorial Hospital, 5.75%, 10/1/24 | A2/A | 3,160,770 | |||||||||||
5,425 | Silver Cross Hospital, 5.50%, 8/15/25, (Pre-refunded @ $101, 8/15/09) (a) | NR/A | 5,748,927 | |||||||||||
Lake Cnty. Community High School Dist., GO, Ser. B (FGIC), | ||||||||||||||
5,000 | zero coupon, 2/1/19 | Aaa/AAA | 2,998,450 | |||||||||||
5,000 | zero coupon, 2/1/20 | Aaa/AAA | 2,857,250 | |||||||||||
5,690 | zero coupon, 2/1/22 | Aaa/AAA | 2,961,417 | |||||||||||
7,345 | Regional Transportation Auth. Rev., 5.50%, 6/1/23, Ser. B (FGIC) | Aaa/AAA | 8,660,783 | |||||||||||
3,000 | State Sales Tax Rev., 5.125%, 6/15/20, Ser. 1 | Aa3/AAA | 3,177,180 | |||||||||||
Univ. Rev. (FGIC), | ||||||||||||||
1,495 | 5.25%, 4/1/32 | Aaa/AAA | 1,576,627 | |||||||||||
3,505 | 5.25%, 4/1/32, (Pre-refunded @ $100, 4/1/11) (a) | Aaa/AAA | 3,749,158 | |||||||||||
4,000 | Winnebago-Boone ETC Cntys. Rock Valley Community College, Dist. No. 511, GO, 5.30%, 10/1/18, (Partially pre-refunded @ $100, 10/1/10) (FGIC) (a) | Aaa/NR | 4,208,600 | |||||||||||
67,177,336 | ||||||||||||||
Indiana–1.8% |
||||||||||||||
6,500 | Carmel School Building Corp. Rev., 5.00%, 7/15/22 (MBIA) | Aaa/AAA | 6,817,850 | |||||||||||
1,225 | Richland-Bean Blossom School Building Corp. Rev., 5.00%, 1/15/22 (FGIC) | Aaa/AAA | 1,275,347 | |||||||||||
1,825 | Zionsville Community Schools Building Corp. Rev., 5.00%, 7/15/27, Ser. A (FSA) | NR/AAA | 1,924,919 | |||||||||||
10,018,116 | ||||||||||||||
Kansas–3.7% |
||||||||||||||
Wichita Hospital Rev., | ||||||||||||||
5,000 | 5.625%, 11/15/31, Ser. III | NR/A+ | 5,346,650 | |||||||||||
14,370 | 6.25%, 11/15/24, Ser. XI | NR/A+ | 15,446,313 | |||||||||||
20,792,963 | ||||||||||||||
Kentucky–0.2% |
||||||||||||||
910 | Economic Dev. Finance Auth. Hospital Facs. Rev., St. Luke’s Hospital, 6.00%, 10/1/19 | A3/A | 1,023,959 | |||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 5
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
Louisiana–6.2% |
||||||||||||||
$ 4,300 | Local Gov’t Environmental Facs. & Community Dev. Auth. Rev., 6.55%, 9/1/25 (ACA) | NR/A | $ 4,929,391 | |||||||||||
27,895 | Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B | Baa3/BBB | 29,667,727 | |||||||||||
34,597,118 | ||||||||||||||
Maryland–0.2% |
||||||||||||||
1,150 | Baltimore Water Project Rev., 5.125%, 7/1/42, Ser. A (FGIC) | Aaa/AAA | 1,206,580 | |||||||||||
Michigan–4.5% |
||||||||||||||
Detroit, GO, Ser. A-1 (MBIA), | ||||||||||||||
1,000 | 5.375%, 4/1/15 | Aaa/AAA | 1,079,220 | |||||||||||
1,000 | 5.375%, 4/1/17 | Aaa/AAA | 1,076,880 | |||||||||||
5,650 | Forest Hills Public Schools, GO, 5.25%, 5/1/18, (Pre-refunded @ $100, 5/1/10) (a) | Aa2/NR | 5,957,360 | |||||||||||
3,000 | Mount Clemens Community School Dist., GO, 5.00%, 5/1/31 | Aa2/AA | 3,122,190 | |||||||||||
50 | Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 5.25%, 11/15/35, Ser. M (MBIA) | Aaa/AAA | 52,221 | |||||||||||
4,000 | State Hospital Finance Auth. Rev., Detroit Medical Center, 6.25%, 8/15/13 | Ba3/BB− | 4,010,040 | |||||||||||
2,000 | State Strategic Fund Ltd. Obligation Rev., Detroit Edison Pollution Control Co., 5.45%, 9/1/29 | A3/BBB+ | 2,123,340 | |||||||||||
3,000 | Taylor Tax Increment Finance Auth., 5.375%, 5/1/17 (FSA) | Aaa/AAA | 3,219,150 | |||||||||||
6,255 | Wayne Charter Cnty. Airport Fac. Rev., 6.75%, 12/1/15 (c) | NR/NR | 4,543,319 | |||||||||||
25,183,720 | ||||||||||||||
Minnesota–0.6% |
||||||||||||||
Agricultural & Economic Dev. Board Rev., Health Care System, | ||||||||||||||
95 | 6.375%, 11/15/29 | A2/A | 105,522 | |||||||||||
2,905 | 6.375%, 11/15/29, (Pre-refunded @ $101, 11/15/10) (a) | A2/A | 3,232,568 | |||||||||||
3,338,090 | ||||||||||||||
Missouri–0.5% |
||||||||||||||
2,500 | Interstate 470 & 350 Transportation Dev. Dist. Rev., 6.35%, 5/1/22 | NR/NR | 2,542,975 | |||||||||||
Nevada–1.4% |
||||||||||||||
3,000 | Clark Cnty. Rev., 5.25%, 7/1/34, Ser. B, (Pre-refunded @ $100, 7/1/11) (FGIC) (a) | Aaa/AAA | 3,219,840 | |||||||||||
4,250 | Truckee Meadows Water Auth. Rev., 5.25%, 7/1/34, Ser. A, (Pre-refunded @ $100, 7/1/11) (FSA) (a) | Aaa/AAA | 4,561,440 | |||||||||||
7,781,280 | ||||||||||||||
New Hampshire–0.6% |
||||||||||||||
3,000 | State Business Finance Auth. Pollution Control Rev., Conn. Light & Power Co., 5.85%, 12/1/22 | Baa1/BBB− | 3,158,340 | |||||||||||
6 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
New Jersey–4.1% |
||||||||||||||
Camden Cnty., Improvement Auth. Rev., Cooper Health System, | ||||||||||||||
$ 240 | 5.60%, 2/15/07 | Baa3/BBB | $ 240,070 | |||||||||||
875 | 6.00%, 2/15/27, (Pre-refunded @ $102, 2/15/07) (a) | Baa3/BBB | 898,223 | |||||||||||
16,550 | Economic Dev. Auth., Kapkowski Landfill Project, 5.75%, 4/1/31 | Baa3/NR | 18,387,050 | |||||||||||
Economic Dev. Auth. Rev., Arbor Glen, | ||||||||||||||
2,510 | 5.875%, 5/15/16 | NR/NR | 2,601,138 | |||||||||||
490 | 5.875%, 5/15/16, Ser. A, (Pre-refunded @ $102, 5/15/09) (a) | NR/NR | 525,461 | |||||||||||
22,651,942 | ||||||||||||||
New Mexico–0.5% |
||||||||||||||
2,500 | Farmington Pollution Control Rev., 5.80%, 4/1/22 | Baa2/BBB | 2,527,200 | |||||||||||
New York–2.1% |
||||||||||||||
5,000 | Liberty Dev. Corp. Rev., Goldman Sachs Headquarters, 5.25%, 10/1/35 | Aa3/AA− | 5,818,250 | |||||||||||
3,000 | New York City Municipal Water Finance Auth., Water & Sewer System Rev., 5.00%, 6/15/39, Ser. A | Aa2/AA+ | 3,146,940 | |||||||||||
2,875 | Westchester Cnty. Healthcare Corp. Rev., 5.875%, 11/1/25, Ser. A | Ba2/BB | 2,985,055 | |||||||||||
11,950,245 | ||||||||||||||
North Carolina–0.6% |
||||||||||||||
3,000 | Capital Facs. Finance Agcy. Rev., Duke Univ. Project, 5.125%, 10/1/41, Ser. A | Aa1/AA+ | 3,131,340 | |||||||||||
Ohio–1.2% |
||||||||||||||
Lorain Cnty. Hospital Rev., Catholic Healthcare Partners, | ||||||||||||||
2,500 | 5.625%, 10/1/17 | Aa3/AA− | 2,701,150 | |||||||||||
2,565 | 5.75%, 10/1/18 | Aa3/AA− | 2,779,588 | |||||||||||
1,235 | State Turnpike Commission Rev., 5.50%, 2/15/15 | Aa3/AA | 1,321,228 | |||||||||||
6,801,966 | ||||||||||||||
Pennsylvania–4.2% |
||||||||||||||
Allegheny Cnty., | ||||||||||||||
5,780 | Hospital Dev. Auth. Rev., 9.25%, 11/15/30, Ser. B | Ba3/B+ | 6,914,672 | |||||||||||
1,000 | Industrial Dev. Auth. Rev., USX Corp., 5.60%, 9/1/30 | Baa1/BBB+ | 1,042,060 | |||||||||||
1,095 | Port Auth. Rev., 5.25%, 3/1/20 (FGIC) | Aaa/AAA | 1,167,960 | |||||||||||
2,575 | Delaware Cnty. Auth. College Rev., Neumann College, 5.80%, 10/1/17 | NR/BBB− | 2,717,449 | |||||||||||
6,200 | Higher Educational Facs. Auth. Rev., 6.00%, 1/15/31, Ser. A | Aa3/A+ | 6,795,138 | |||||||||||
4,610 | Philadelphia Hospitals & Higher Education Facs. Hospital Rev., Temple Univ. Hospital, 6.625%, 11/15/23, Ser. A | Baa2/BBB | 4,675,646 | |||||||||||
23,312,925 | ||||||||||||||
Puerto Rico–2.4% |
||||||||||||||
850 | Commonwealth of Puerto Rico, GO, 5.00%, 7/1/35, Ser. B | Baa3/BBB | 889,057 | |||||||||||
1,600 | Electric Power Auth., Power Rev., 5.125%, 7/1/29, Ser. NN | A3/BBB+ | 1,687,984 | |||||||||||
10,665 | Gov’t Dev. Bank for Puerto Rico Rev., 5.00%, 12/1/08, Ser. B | Baa3/BBB | 10,909,442 | |||||||||||
13,486,483 | ||||||||||||||
Rhode Island–3.5% |
||||||||||||||
18,000 | Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. A | Baa3/BBB | 19,254,060 | |||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 7
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
South Carolina–4.9% |
||||||||||||||
Greenwood Cnty. Hospital Rev., Self Memorial Hospital, | ||||||||||||||
$3,500 | 5.50%, 10/1/21 | A2/A | $3,712,625 | |||||||||||
2,000 | 5.50%, 10/1/26 | A2/A | 2,118,780 | |||||||||||
3,000 | Jobs Economic Dev. Auth. Hospital Facs. Rev., Georgetown Memorial Hospital, 5.375%, 2/1/30 (Radian) | NR/AA | 3,156,600 | |||||||||||
15,600 | Tobacco Settlement Rev., Management Auth. Rev., 6.375%, 5/15/30, Ser. B | Baa3/BBB | 18,236,088 | |||||||||||
27,224,093 | ||||||||||||||
Tennessee–0.2% |
||||||||||||||
940 | Memphis Health Educational & Housing Fac., Wesley Housing Corp. Project, 6.95%, 1/1/20 | NR/NR | 901,389 | |||||||||||
Texas–13.5% |
||||||||||||||
1,750 | Austin Convention Enterprises, Inc., 5.75%, 1/1/32, Ser. B | A3/NR | 1,826,650 | |||||||||||
4,000 | Austin Rev., 5.25%, 5/15/31, Ser. A & B (FSA) | Aaa/AAA | 4,196,920 | |||||||||||
2,935 | Bell Cnty. Health Fac. Dev. Corp., 5.25%, 11/15/19 | NR/A− | 2,998,337 | |||||||||||
10,000 | Coppell Independent School Dist., GO, zero coupon, 8/15/29 (PSF-GTD) | NR/AAA | 3,628,100 | |||||||||||
Corpus Christi Refinance & Improvement, GO (FSA), | ||||||||||||||
1,125 | 5.375%, 3/1/18 | Aaa/AAA | 1,201,511 | |||||||||||
1,740 | 5.375%, 3/1/18, (Pre-refunded @ $100, 3/1/11) (a) | Aaa/AAA | 1,865,541 | |||||||||||
9,000 | Cypress-Fairbanks Independent School Dist., GO, 4.80%, 2/15/26, Ser. B (PSF-GTD) | Aaa/AAA | 9,392,310 | |||||||||||
Duncanville Independent School Dist., GO, Ser. B (PSF-GTD), | ||||||||||||||
20 | 5.25%, 2/15/32 | Aaa/AAA | 21,247 | |||||||||||
3,660 | 5.25%, 2/15/32, (Pre-refunded @ $100, 2/15/12) (a) | Aaa/AAA | 3,949,835 | |||||||||||
Harris Cnty. Health Facs. Dev. Corp. Rev., | ||||||||||||||
5,000 | Christus Health, 5.375%, 7/1/29, Ser. A, (Pre-refunded @ $101, 7/1/09) (MBIA) (a) | Aaa/AAA | 5,268,500 | |||||||||||
7,000 | Memorial Hermann Healthcare, 6.375%, 6/1/29, (Pre-refunded @ $101, 6/1/11) (a) | A2/A+ | 7,869,120 | |||||||||||
2,000 | Mansfield Independent School Dist., GO, 5.25%, 2/15/23 (PSF-GTD) | Aaa/AAA | 2,129,720 | |||||||||||
4,380 | Southlake Park Dev. Corp. Rev., 5.60%, 8/15/31, (Pre-refunded @ $100, 2/15/11) (AMBAC) (a) | Aaa/AAA | 4,676,176 | |||||||||||
4,530 | State, GO, 5.30%, 8/1/18, Ser. A | Aa1/AA | 4,816,840 | |||||||||||
19,990 | State Turnpike Auth. Rev., zero coupon, 8/15/25, Ser. A (AMBAC) | Aaa/AAA | 8,809,993 | |||||||||||
4,920 | Univ. Rev., 5.00%, 7/1/26, Ser. B | Aaa/AAA | 5,231,633 | |||||||||||
7,450 | Water Dev. Board Rev., 5.125%, 7/15/18 | Aaa/AAA | 7,472,648 | |||||||||||
75,355,081 | ||||||||||||||
Utah–1.3% |
||||||||||||||
7,000 | Salt Lake Cnty. Hospital Rev., IHC Health Services, 5.125%, 2/15/33 (AMBAC) | Aaa/AAA | 7,323,750 | |||||||||||
Washington–2.1% |
||||||||||||||
Cowlitz Cnty. School Dist. No. 458 Kelso, GO, (Pre-refunded @ $100, 12/1/11) (FSA) (a), | ||||||||||||||
985 | 5.625%, 12/1/14 | Aaa/NR | 1,080,131 | |||||||||||
1,225 | 5.625%, 12/1/16 | Aaa/NR | 1,343,311 | |||||||||||
8 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
Washington (continued) |
||||||||||||||
$3,415 | Kent, GO, 5.375%, 12/1/20 (MBIA) | Aaa/AAA | $3,650,942 | |||||||||||
5,420 | King Cnty. School Dist. No. 1 Seattle, GO, 5.25%, 12/1/21, Ser. A (MBIA) | Aaa/AAA | 5,777,070 | |||||||||||
11,851,454 | ||||||||||||||
Wisconsin–4.3% |
||||||||||||||
Badger Tobacco Asset Securitization Corp., | ||||||||||||||
5,000 | 5.75%, 6/1/12 | Baa3/BBB | 5,379,050 | |||||||||||
9,785 | 6.00%, 6/1/17 | Baa3/BBB | 10,461,730 | |||||||||||
3,515 | State, GO, 5.00%, 5/1/22, Ser. A (FGIC) | Aaa/AAA | 3,709,907 | |||||||||||
2,230 | State Health & Educational Facs. Auth. Rev., Kenosha Hospital & Medical Center, 5.625%, 5/15/29 | NR/A | 2,302,988 | |||||||||||
2,250 | Wisconsin Health & Educational Facs. Auth., Divine Savior Healthcare Rev., 5.00%, 5/1/32 | NR/BBB | 2,278,845 | |||||||||||
24,132,520 | ||||||||||||||
Total Municipal Bonds & Notes (cost–$482,958,710) | 520,952,204 | |||||||||||||
VARIABLE RATE NOTES (f)–6.1% |
||||||||||||||
Hawaii–0.3% |
||||||||||||||
1,388 | City & Cnty. of Honolulu Rev., 9.72%, 7/1/23, Ser. 400 (FGIC) (b)(e) | Aaa/NR | 1,649,710 | |||||||||||
Illinois–1.2% |
||||||||||||||
2,902 | Cook Cnty., GO, 9.72%, 11/15/28, Ser. 458 (FGIC) (b)(e) | Aaa/NR | 3,517,511 | |||||||||||
2,765 | Educational Facs. Auth. Rev., 8.024%, 7/1/38 (b)(e) | NR/AA | 3,104,763 | |||||||||||
6,622,274 | ||||||||||||||
Massachusetts–0.5% |
||||||||||||||
2,000 | State Health & Educational Facs. Auth. Rev., 11.202%, 7/1/32 (b)(e) | NR/NR | 2,811,100 | |||||||||||
Nevada–0.6% |
||||||||||||||
2,440 | Washoe Cnty., GO, 9.743%, 1/1/35, Ser. 1241 (MBIA) (b)(e) | Aaa/AAA | 3,193,399 | |||||||||||
New York–1.9% |
||||||||||||||
224 | New York City Municipal Water Finance Auth., Water & Sewer System Rev., 9.83%, 6/15/37, Ser. 1226 (b)(e) | Aa2/NR | 286,507 | |||||||||||
New York City Municipal Water Finance Auth. Rev., | ||||||||||||||
2,600 | 7.36%, 6/15/26 (b)(e) | NR/AA+ | 3,198,260 | |||||||||||
6,000 | 8.868%, 6/15/39 | Aa2/AA2 | 7,303,920 | |||||||||||
10,788,687 | ||||||||||||||
Texas–1.2% |
||||||||||||||
Harris Cnty. Health Facs. Dev. Corp. Rev. (b)(e), | ||||||||||||||
1,720 | 9.203%, 2/15/26 | NR/AA− | 2,373,239 | |||||||||||
3,595 | 11.60%, 7/1/29, Ser. 357 (MBIA) | Aaa/NR | 4,560,257 | |||||||||||
6,933,496 | ||||||||||||||
Washington–0.4% |
||||||||||||||
1,800 | Seattle, GO, 10.35%, 12/15/28, Ser. 348 (b)(e) | Aa1/NR | 2,038,140 | |||||||||||
Total Variable Rate Notes (cost–$27,309,433) | 34,036,806 | |||||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 9
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
U.S. TREASURY BILLS (g)–0.4% |
||||||||||||||
$2,210 | 4.71%-4.935%, 11/30/06-12/14/06 (cost–$2,198,058) | $2,198,058 | ||||||||||||
OPTIONS PURCHASED (d)–(0.0)% |
||||||||||||||
Contracts | ||||||||||||||
Put Options–(0.0)% |
||||||||||||||
125 | Eurodollar Futures, Chicago Mercantile Exchange, strike price $92, expires 3/19/07 (cost–$1,187) | 781 | ||||||||||||
Total Investments before options written (cost–$512,467,388)–100.1% | 557,187,849 | |||||||||||||
OPTIONS WRITTEN (d)–(0.1)% |
||||||||||||||
Call Options–(0.1)% |
||||||||||||||
836 | U.S. Treasury Notes 10 yr. Futures, Chicago Board of Trade, strike price $108, expires 11/21/06 (premiums received–$154,033) | (457,187) | ||||||||||||
Total Investments net of options written (cost–$512,313,355)–100.0% | $556,730,662 | |||||||||||||
10 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06 | See accompanying Notes to Financial Statements
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
CALIFORNIA MUNICIPAL BONDS & NOTES–87.7% |
||||||||||||||
ABAG Finance Auth. for Nonprofit Corps., | ||||||||||||||
$1,000 | CP, 5.375%, 2/15/19 | NR/BBB | $ 1,045,240 | |||||||||||
1,000 | Rev., 5.375%, 11/15/25 (CA Mtg. Ins.) | NR/A | 1,047,440 | |||||||||||
1,385 | Alvord Unified School Dist., GO, 5.375%, 8/1/29, Ser. C (FSA) | Aaa/NR | 1,406,204 | |||||||||||
8,000 | California Cnty., Tobacco Settlement Rev., zero coupon, 6/1/28 | Baa3/NR | 6,732,960 | |||||||||||
6,405 | Campbell Union High School Dist., GO, 5.50%, 8/1/30 (FSA) | Aaa/NR | 6,851,749 | |||||||||||
2,250 | Capistrano Unified School Dist., Special Tax, 5.75%, 9/1/29, (Pre-refunded @ $102, 9/1/09) (a) |
NR/NR | 2,424,577 | |||||||||||
Carson, Improvement Board Act 1915, Special Assessment, | ||||||||||||||
3,250 | 6.35%, 9/2/23 | NR/NR | 3,360,922 | |||||||||||
5,000 | 6.375%, 9/2/31 | NR/NR | 5,169,700 | |||||||||||
5,250 | Central JT Powers Health Financing Auth., CP, 5.75%, 2/1/31 | Baa2/BBB− | 5,453,752 | |||||||||||
4,140 | Charter Oak Unified School Dist., GO, 5.00%, 7/1/28, Ser. B, (Pre-refunded @ $100, 7/1/13) (FSA) (a) | Aaa/AAA | 4,505,935 | |||||||||||
Contra Costa Cnty. Public Financing Auth., Tax Allocation, | ||||||||||||||
2,150 | 5.125%, 8/1/19 | NR/BBB | 2,243,052 | |||||||||||
600 | 5.125%, 8/1/19, (Pre-refunded @ $102, 8/1/09) (a) | NR/BBB | 635,856 | |||||||||||
5,000 | 5.85%, 8/1/33 | NR/BBB | 5,349,500 | |||||||||||
2,750 | CSUCI Financing Auth. Rev., 5.00%, 9/1/31, Ser. A (MBIA) | Aaa/AAA | 2,868,277 | |||||||||||
3,635 | Cucamonga Cnty. Water Dist., CP, 5.125%, 9/1/35 (FGIC) | Aaa/AAA | 3,816,605 | |||||||||||
East Side Union High School Dist.-Santa Clara Cnty., GO, Ser. E (XLCA), | ||||||||||||||
1,985 | zero coupon, 8/1/21 | Aaa/AAA | 1,016,638 | |||||||||||
1,490 | zero coupon, 8/1/22 | Aaa/AAA | 726,077 | |||||||||||
El Monte, CP (AMBAC), | ||||||||||||||
10,790 | 4.75%, 6/1/30 | Aaa/AAA | 10,976,020 | |||||||||||
14,425 | 5.25%, 1/1/34 | Aaa/AAA | 15,171,205 | |||||||||||
Foothill/Eastern Corridor Agcy. Rev., Toll Road Rev., | ||||||||||||||
5,000 | zero coupon, 1/15/33 | Baa3/BBB− | 1,084,050 | |||||||||||
5,000 | zero coupon, 1/15/34 | Baa3/BBB− | 1,018,950 | |||||||||||
Fremont Community Dist., Special Tax, | ||||||||||||||
165 | 6.00%, 9/1/18 | NR/NR | 173,994 | |||||||||||
505 | 6.00%, 9/1/19 | NR/NR | 531,699 | |||||||||||
3,500 | 6.30%, 9/1/31 | NR/NR | 3,703,000 | |||||||||||
Golden State Tobacco Securitization Corp. Rev., | ||||||||||||||
17,500 | 6.25%, 6/1/33, Ser. 2003-A-1 | Baa3/BBB | 19,531,925 | |||||||||||
10,155 | 6.75%, 6/1/39, Ser. 2003-A-1 | Baa3/BBB | 11,654,589 | |||||||||||
540 | 7.875%, 6/1/42, Ser. A-3 | Baa3/BBB | 664,864 | |||||||||||
Health Facs. Finance Auth. Rev., Catholic Healthcare West, | ||||||||||||||
875 | 5.00%, 7/1/28, (Partially pre-refunded @ $101, 7/1/08) (a) | A3/A | 891,835 | |||||||||||
125 | 5.00%, 7/1/28, (Pre-refunded @ $101, 7/1/08) (a) | A3/A | 129,278 | |||||||||||
Health Facs. Financing Auth. Rev., | ||||||||||||||
1,980 | 5.00%, 7/1/18 | A3/A | 2,037,044 | |||||||||||
130 | 5.00%, 7/1/18, (Pre-refunded @ $101, 7/1/08) (a) | A3/A | 134,449 | |||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 11
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
$5,315 | 5.125%, 7/1/18 | NR/BBB+ | $5,383,404 | |||||||||||
3,000 | 5.25%, 10/1/14, Ser. B | A3/AAA | 3,125,340 | |||||||||||
6,250 | Infrastructure & Economic Dev. Bank Rev., Bay Area Toll Bridges, 5.00%, 7/1/36, (Pre-refunded @ $100, 1/1/28) (AMBAC) (a) | Aaa/AAA | 7,117,000 | |||||||||||
La Quinta Redev. Agcy., Tax Allocation (AMBAC), | ||||||||||||||
3,000 | 5.00%, 9/1/21 | Aaa/AAA | 3,183,060 | |||||||||||
10,000 | 5.10%, 9/1/31 | Aaa/AAA | 10,547,100 | |||||||||||
1,000 | 5.125%, 9/1/32 | Aaa/AAA | 1,059,050 | |||||||||||
1,495 | Lincoln Public Financing Auth. Rev., Twelve Bridges Ltd., 6.125%, 9/2/27 | NR/NR | 1,548,760 | |||||||||||
6,250 | Los Angeles Cnty. Metropolitan Transportation Auth. Rev., 4.75%, 7/1/28, Ser. B, (Pre-refunded @ $101, 7/1/09) (FSA) (a) | Aaa/AAA | 6,516,562 | |||||||||||
Los Angeles Community Redev. Agcy., Tax Allocation, | ||||||||||||||
520 | 5.875%, 9/1/26 | NR/NR | 527,961 | |||||||||||
325 | 6.00%, 9/1/31 | NR/NR | 330,392 | |||||||||||
3,250 | Los Angeles Unified School Dist., GO, 5.125%, 7/1/21, Ser. E, (Pre-refunded @ $100, 7/1/12) (MBIA) (a) | Aaa/AAA | 3,525,892 | |||||||||||
12,000 | Los Angeles Water & Power Rev., 5.25%, 7/1/21, Ser. A-A-1 (FSA) | Aaa/AAA | 12,778,440 | |||||||||||
3,500 | Metropolitan Water Dist. of Southern California Rev., Water Works Rev., 5.00%, 7/1/26, Ser. A, (Pre-refunded @ $101, 1/1/08) (a) | Aa2/AA+ | 3,596,740 | |||||||||||
5,820 | Montclair Redev. Agcy., Tax Allocation, 5.30%, 10/1/30 (MBIA) | Aaa/AAA | 6,241,368 | |||||||||||
Murrieta Valley Unified School Dist., Special Tax, | ||||||||||||||
195 | 6.30%, 9/1/18 | NR/NR | 212,993 | |||||||||||
3,535 | 6.50%, 9/1/31 | NR/NR | 3,880,016 | |||||||||||
6,255 | Orange Cnty. Sanitation Dist., CP, 5.25%, 2/1/30 (FGIC) | Aaa/AAA | 6,708,988 | |||||||||||
1,080 | Palm Springs Community Redev. Agcy., Tax Allocation, 5.50%, 8/1/21 | NR/A− | 1,148,526 | |||||||||||
1,010 | Pomona Unified School Dist., GO, 6.10%, 2/1/19, Ser. A (MBIA) | Aaa/AAA | 1,236,796 | |||||||||||
1,690 | Rancho Etiwanda Public Facs., Special Tax, 6.375%, 9/1/24 | NR/NR | 1,790,572 | |||||||||||
Rancho Mirage Redev. Agcy., Tax Allocation, | ||||||||||||||
1,190 | 5.50%, 4/1/24 | Baa1/BBB+ | 1,263,542 | |||||||||||
1,580 | 5.625%, 4/1/33 | Baa1/BBB+ | 1,677,644 | |||||||||||
Riverside, Improvement Board Act 1915, Special Assessment, | ||||||||||||||
500 | 6.15%, 9/2/19 | NR/NR | 536,030 | |||||||||||
1,350 | 6.375%, 9/2/26 | NR/NR | 1,453,626 | |||||||||||
8,305 | Riverside Cnty., CP, 5.125%, 11/1/30 (MBIA) | Aaa/AAA | 8,812,934 | |||||||||||
185 | Riverside Cnty. Public Auth. Financing, Tax Allocation, 5.625%, 10/1/33 | Baa1/A | 188,939 | |||||||||||
575 | Roseville, Woodcreek Community Facs. Dist., Special Tax, 6.375%, 9/1/27, (Pre-refunded @ $102, 9/1/10) (a) | NR/NR | 643,114 | |||||||||||
Sacramento, Special Tax, | ||||||||||||||
2,945 | 5.70%, 9/1/23 | NR/NR | 3,006,403 | |||||||||||
1,350 | 6.10%, 9/1/21 | NR/NR | 1,399,424 | |||||||||||
2,560 | 6.15%, 9/1/26 | NR/NR | 2,658,022 | |||||||||||
12 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
$2,000 | Sacramento Health Fac. Rev., 5.30%, 1/1/24, Ser. A (CA Mtg. Ins.) | NR/A+ | $2,056,180 | |||||||||||
545 | San Diego Cnty., CP, 5.25%, 10/1/28 | A2/NR | 570,381 | |||||||||||
1,000 | San Diego Cnty. Water Auth., CP, 5.00%, 5/1/32, Ser. A (MBIA) | Aaa/AAA | 1,048,530 | |||||||||||
3,330 | San Francisco Bay Area Rapid Transit Dist. Rev., 5.125%, 7/1/36 (AMBAC) | Aaa/AAA | 3,480,483 | |||||||||||
720 | San Francisco City & Cnty. Redev. Agcy. Rev., Special Tax, 6.125%, 8/1/31 | NR/NR | 758,362 | |||||||||||
5,065 | San Joaquin Cnty., CP, 5.00%, 9/1/20 (MBIA) | Aaa/AAA | 5,269,018 | |||||||||||
San Joaquin Hills Transportation Corridor Agcy. Toll Road Rev., Ser. A, | ||||||||||||||
5,000 | zero coupon, 1/15/19 | Ba2/B | 5,040,550 | |||||||||||
5,000 | 5.50%, 1/15/28 | Ba2/B | 5,031,400 | |||||||||||
230 | San Jose, Improved Board Act 1915, Special Assessment, 5.60%, 9/2/17, Ser. Q | NR/NR | 237,537 | |||||||||||
5,000 | San Jose Unified School Dist., Santa Clara Cnty., GO, 5.125%, 8/1/25, Ser. D, (Pre-refunded @ $101, 8/1/10) (FSA) (a) | Aaa/AAA | 5,339,200 | |||||||||||
San Juan Unified School Dist., GO (FSA), | ||||||||||||||
9,445 | zero coupon, 8/1/22 | Aaa/AAA | 4,819,028 | |||||||||||
10,895 | zero coupon, 8/1/25 | Aaa/AAA | 4,827,466 | |||||||||||
6,110 | zero coupon, 8/1/26 | Aaa/AAA | 2,582,269 | |||||||||||
600 | Santa Ana Financing Auth. Rev., 5.60%, 9/1/19 | NR/BBB | 626,688 | |||||||||||
1,815 | Santa Clara, CP, 5.00%, 2/1/32 (AMBAC) | Aaa/AAA | 1,901,013 | |||||||||||
1,435 | Santa Maria JT Union High School Dist., GO, 5.25%, 8/1/25, Ser. A, (Pre-refunded @ $102, 8/1/15) (FSA) (a) |
Aaa/AAA | 1,635,699 | |||||||||||
Statewide Community Dev. Auth., CP, | ||||||||||||||
8,000 | 5.375%, 4/1/30 | NR/BBB | 8,151,920 | |||||||||||
2,325 | 6.50%, 7/1/20 | A3/A | 2,536,110 | |||||||||||
5,675 | 6.50%, 7/1/20, (Pre-refunded @ $101, 7/1/08) (a) | A3/A | 6,288,354 | |||||||||||
Statewide Community Dev. Auth. Rev., | ||||||||||||||
15,250 | 5.125%, 10/1/30 (CA Mtg. Ins.) | NR/A+ | 15,692,402 | |||||||||||
3,000 | 5.50%, 11/15/33 (CA St. Mtg.) | NR/A+ | 3,248,610 | |||||||||||
4,000 | 5.50%, 8/15/34, Ser. B | Aa3/AA− | 4,287,600 | |||||||||||
5,600 | 6.625%, 10/1/31 | NR/NR | 5,758,536 | |||||||||||
4,300 | 6.625%, 11/1/31 | NR/NR | 4,564,708 | |||||||||||
2,500 | 6.75%, 6/1/28 | NR/NR | 2,633,775 | |||||||||||
Tobacco Securitization Auth. Rev., Ser. A, (Pre-refunded @ $100, 6/1/11) (a) | ||||||||||||||
1,500 | 5.25%, 6/1/31 | Aaa/AAA | 1,611,420 | |||||||||||
9,300 | 5.375%, 6/1/41 | Aaa/AAA | 10,039,536 | |||||||||||
1,650 | Town of Apple Valley, CP, 5.375%, 6/1/21 (CA Mtg. Ins.) | NR/A+ | 1,760,946 | |||||||||||
Tustin Unified School Dist., Special Tax, | ||||||||||||||
2,345 | 5.50%, 9/1/22 | NR/NR | 2,391,572 | |||||||||||
2,520 | 5.60%, 9/1/29 | NR/NR | 2,592,425 | |||||||||||
2,000 | 5.625%, 9/1/32 | NR/NR | 2,053,940 | |||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 13
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
Univ. Rev., | ||||||||||||||
$10,000 | 5.00%, 5/15/36, Ser. A (AMBAC) | Aaa/AAA | $10,481,900 | |||||||||||
7,000 | 5.125%, 9/1/31, Ser. O (FGIC) | Aaa/AAA | 7,369,810 | |||||||||||
3,750 | West Kern Cnty. Water Dist., CP, 5.625%, 6/1/31, (Pre-refunded @ $101, 6/1/10) (a) | Baa2/NR | 4,044,862 | |||||||||||
Total California Municipal Bonds & Notes (cost–$336,510,634) | 365,188,254 | |||||||||||||
OTHER MUNICIPAL BONDS & NOTES–8.1% |
||||||||||||||
Illinois–1.4% | ||||||||||||||
Educational Facs. Auth. Rev., Univ. of Chicago, | ||||||||||||||
5,260 | 5.00%, 7/1/33 | Aa1/AA | 5,495,806 | |||||||||||
240 | 5.00%, 7/1/33, (Pre-refunded @ $100, 7/1/13) (a) | Aa1/AA | 259,730 | |||||||||||
5,755,536 | ||||||||||||||
Iowa–2.1% | ||||||||||||||
8,700 | Tobacco Settlement Auth. Rev., zero coupon, 6/1/34, Ser. B | Baa3/BBB | 8,554,710 | |||||||||||
Louisiana–0.4% | ||||||||||||||
1,750 | Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B | Baa3/BBB | 1,861,212 | |||||||||||
New Jersey–1.6% | ||||||||||||||
Tobacco Settlement Financing Corp. Rev., | ||||||||||||||
1,685 | 6.00%, 6/1/37 | Baa3/BBB | 1,824,788 | |||||||||||
2,210 | 6.125%, 6/1/42 | Baa3/BBB | 2,406,911 | |||||||||||
2,315 | 6.375%, 6/1/32 | Baa3/BBB | 2,586,179 | |||||||||||
6,817,878 | ||||||||||||||
New York–0.5% | ||||||||||||||
2,000 | State Dormitory Auth. Rev., 6.25%, 8/15/15 (FHA) | Aa2/AAA | 2,286,700 | |||||||||||
Puerto Rico–1.6% | ||||||||||||||
Electric Power Auth., Power Rev., | ||||||||||||||
1,250 | 5.125%, 7/1/29, Ser. NN | A3/BBB+ | 1,318,738 | |||||||||||
5,000 | 5.25%, 7/1/29, Ser. HH (FSA) | Aaa/AAA | 5,315,400 | |||||||||||
6,634,138 | ||||||||||||||
Rhode Island–0.4% | ||||||||||||||
1,500 | Tobacco Settlement Financing Corp. Rev., 6.125%, 6/1/32, Ser. A | Baa3/BBB | 1,610,580 | |||||||||||
South Carolina–0.1% | ||||||||||||||
340 | Tobacco Settlement Rev., Management Auth., 6.375%, 5/15/30, Ser. B | Baa3/BBB | 397,453 | |||||||||||
Total Other Municipal Bonds & Notes (cost–$30,670,045) | 33,918,207 | |||||||||||||
CALIFORNIA VARIABLE RATE NOTES (b)(e)(f)–2.7% |
||||||||||||||
1,600 | Golden State Tobacco Securitization Corp. Rev., 9.91%, 6/1/38, Ser. 1436 (FGIC) | Aaa/AAA | 2,019,920 | |||||||||||
1,000 | Los Angeles Water & Power Rev., 8.66%, 7/1/30, Ser. 1243 (FSA) | Aaa/AAA | 1,168,300 | |||||||||||
14 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
Principal Amount (000) |
Credit Rating (Moody’s/S&P) |
Value | ||||||||||||
$4,001 | Los Angeles Wastewater System Rev., 9.88%, 6/1/28, Ser. 318 (FGIC) | Aaa/NR | $4,677,769 | |||||||||||
1,000 | Sacramento Cnty. Sanitation Dist. Rev., 9.62%, 8/1/13, Ser. 1034 (MBIA) | NR/AAA | 1,323,800 | |||||||||||
2,000 | Univ. Rev., 8.64%, 5/15/35, Ser. 1119 (FSA) | NR/AAA | 2,241,500 | |||||||||||
Total California Variable Rate Notes (cost–$9,869,930) | 11,431,289 | |||||||||||||
OTHER VARIABLE RATE NOTES (e)(f)–1.3% |
||||||||||||||
Illinois–1.3% | ||||||||||||||
4,000 | Chicago Rev., 10.413%, 5/1/14, Ser. 1419 (AMBAC) (cost–$4,422,309) | NR/NR | 5,295,000 | |||||||||||
U.S. TREASURY BILLS (g)–0.2% |
||||||||||||||
670 | 4.74%-4.87%, 11/30/06-12/14/06 (cost–$666,256) | 666,256 | ||||||||||||
Total Investments before options written (cost–$382,139,174)–100.0% | 416,499,006 | |||||||||||||
OPTIONS WRITTEN (d)–(0.0)% |
||||||||||||||
Contracts | ||||||||||||||
Call Options–(0.0)% | ||||||||||||||
223 | U.S. Treasury Notes 10 yr. Futures, Chicago Board of Trade, strike price $108, expires 11/21/06 (premiums received–$41,088) | (121,953) | ||||||||||||
Total Investments net of options written (cost–$382,098,086)–100.0% | $416,377,053 | |||||||||||||
See accompanying Notes to Financial Statements | 10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 15
Notes to the Schedules of Investments:
(a) | Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). |
(b) | 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. |
(c) | Security in default. |
(d) | Non-income producing. |
(e) | Residual Interest Municipal Bonds (‘‘RIBS’’)/Residual Interest Tax Exempt Bonds (‘‘RITES’’) – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. |
(f) | Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or 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 October 31, 2006. |
(g) All or partial amount segregated as collateral for futures contracts and/or in options written. |
Glossary:
ACA – insured by American Capital Access Holding Ltd. |
AMBAC – insured by American Municipal Bond Assurance Corp. |
CA Mtg. Ins. – insured by California Mortgage Insurance |
CA St. Mtg. – insured by California State Mortgage |
CR – Custodian Receipt |
CP – Certificates of Participation |
FGIC – insured by Financial Guaranty Insurance Co. |
FHA – insured by Federal Housing Administration |
FSA – insured by Financial Security Assurance, Inc. |
GTD – Guaranteed |
GO – General Obligation Bond |
IBC – Insurance Bond Certificate |
MBIA – insured by Municipal Bond Investors Assurance |
NR – Not Rated |
PSF – Public School Fund |
Radian – insured by Radian Guaranty, Inc. |
TCRS – Temporary Custodian Receipts |
XLCA – insured by XL Capital Assurance |
16 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06 | See accompanying Notes to Financial Statements
Municipal | California Municipal |
|||||||||
Assets: | ||||||||||
Investments, at value (cost–$512,467,388 and $382,139,174, respectively) | $557,187,849 | $416,499,006 | ||||||||
Interest receivable | 10,284,091 | 5,882,865 | ||||||||
Receivable for investments sold | 5,958,343 | — | ||||||||
Prepaid expenses | 13,247 | 10,968 | ||||||||
Total Assets | 573,443,530 | 422,392,839 | ||||||||
Liabilities: | ||||||||||
Dividends payable to common and preferred shareholders | 2,069,528 | 1,421,144 | ||||||||
Payable to custodian | 1,180,957 | 1,529,655 | ||||||||
Options written, at value (premiums received–$154,033 and $41,088, respectively) | 457,187 | 121,953 | ||||||||
Payable for variation margin on futures contracts | 260,300 | 58,281 | ||||||||
Investment management fees payable | 239,847 | 176,590 | ||||||||
Accrued expenses | 191,193 | 97,940 | ||||||||
Total Liabilities | 4,399,012 | 3,405,563 | ||||||||
Preferred shares ($25,000 net asset and liquidation value per share applicable to an aggregate of 8,000 and 6,000 shares issued and outstanding, respectively) | 200,000,000 | 150,000,000 | ||||||||
Net Assets Applicable to Common Shareholders | $369,044,518 | $268,987,276 | ||||||||
Composition of Net Assets Applicable to
Common Shareholders: |
||||||||||
Common Stock (no par value): Paid-in-capital |
$348,982,552 | $254,828,570 | ||||||||
Undistributed net investment income | 4,737,964 | 2,365,186 | ||||||||
Accumulated net realized loss on investments | (28,230,023) | (22,164,134) | ||||||||
Net unrealized appreciation of investments, futures contracts and options written | 43,554,025 | 33,957,654 | ||||||||
Net Assets Applicable to Common Shareholders | $369,044,518 | $268,987,276 | ||||||||
Common Shares Outstanding | 24,561,909 | 17,950,284 | ||||||||
Net Asset Value Per Common Share | $15.03 | $14.99 | ||||||||
See accompanying Notes to Financial Statements | 10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 17
Municipal | California Municipal |
|||||||||
Investment Income: | ||||||||||
Interest | $14,885,994 | $10,915,214 | ||||||||
Expenses: | ||||||||||
Investment management fees | 1,924,987 | 1,417,717 | ||||||||
Auction agent fees and commissions | 258,146 | 193,679 | ||||||||
Custodian and accounting agent fees | 72,941 | 51,522 | ||||||||
Shareholder communications | 28,182 | 21,790 | ||||||||
Audit and tax services | 20,633 | 16,464 | ||||||||
Trustees’ fees and expenses | 19,161 | 16,104 | ||||||||
Transfer agent fees | 12,797 | 11,768 | ||||||||
New York Stock Exchange listing fees | 12,531 | 12,371 | ||||||||
Legal fees | 8,076 | 5,152 | ||||||||
Insurance expense | 6,305 | 4,793 | ||||||||
Investor relations | 2,016 | 2,744 | ||||||||
Miscellaneous | 228 | 988 | ||||||||
Total expenses | 2,366,003 | 1,755,092 | ||||||||
Less: investment management fees waived | (563,240) | (414,812) | ||||||||
custody credits earned on cash balances | (35,044) | (7,602) | ||||||||
Net expenses | 1,767,719 | 1,332,678 | ||||||||
Net Investment Income | 13,118,275 | 9,582,536 | ||||||||
Realized and Change in Unrealized Gain (Loss): | ||||||||||
Net realized gain (loss) on: | ||||||||||
Investments | (741,125) | 18,964 | ||||||||
Futures contracts | (793,864) | (221,568) | ||||||||
Options written | 614,483 | 183,743 | ||||||||
Net change in unrealized appreciation/depreciation of: Investments |
15,597,924 | 9,926,813 | ||||||||
Futures contracts | (526,507) | 262,578 | ||||||||
Options written | (159,336) | (40,468) | ||||||||
Net realized and change in unrealized gain on investments, futures contracts and options written | 13,991,575 | 10,130,062 | ||||||||
Net Increase in Net Assets Resulting from Investment Operations | 27,109,850 | 19,712,598 | ||||||||
Dividends on Preferred Shares from Net Investment Income |
(3,391,374) | (2,326,687) | ||||||||
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations | $23,718,476 | $17,385,911 | ||||||||
18 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06 | See accompanying Notes to Financial Statements
Municipal | California Municipal | |||||||||||||||||
Six Months ended October 31, 2006 (unaudited) |
Year ended April 30, 2006 |
Six Months ended October 31, 2006 (unaudited) |
Year ended April 30, 2006 |
|||||||||||||||
Investment Operations: | ||||||||||||||||||
Net investment income | $13,118,275 | $26,839,436 | $9,582,636 | $ | 18,666,273 | |||||||||||||
Net realized gain (loss) on investments, futures contracts and options written | (920,506) | (402,201) | (18,861) | (383,457 | ) | |||||||||||||
Net change in unrealized appreciation/depreciation of investments, futures contracts and options written | 14,912,081 | (4,710,125) | 10,148,923 | (540,907 | ) | |||||||||||||
Net increase in net assets resulting from investment operations | 27,109,850 | 21,727,110 | 19,712,598 | 17,941,909 | ||||||||||||||
Dividends on Preferred Shares from Net investment income | (3,391,374) | (5,231,157) | (2,326,687) | (3,616,030 | ) | |||||||||||||
Net increase in net assets applicable to common shareholders resulting from investment operations |
23,718,476 | 16,495,953 | 17,385,911 | 14,325,879 | ||||||||||||||
Dividends on Common Shareholders from Net investment income | (11,956,300) | (23,781,657) | (8,283,432) | (16,498,449 | ) | |||||||||||||
Capital Share Transactions: | ||||||||||||||||||
Reinvestment of dividends | 1,405,528 | 2,463,094 | 757,373 | 1,322,388 | ||||||||||||||
Total increase (decrease) in net assets applicable to common shareholders | 13,167,704 | (4,822,610) | 9,859,852 | (850,182 | ) | |||||||||||||
Net Assets Applicable to Common Shareholders: | ||||||||||||||||||
Beginning of period | 355,876,814 | 360,699,424 | 259,127,424 | 259,977,606 | ||||||||||||||
End of period (including undistributed (dividends in excess of) net investment income of $4,737,964 and $6,967,363; $2,365,186 and $3,392,769; respectively) | $369,044,518 | $355,876,814 | $268,987,276 | $ | 259,127,424 | |||||||||||||
Common Shares Issued in Reinvestment of Dividends: | 88,807 | 162,728 | 49,727 | 89,328 | ||||||||||||||
See accompanying Notes to Financial Statements | 10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 19
1. Organization and Significant Accounting Policies
PIMCO Municipal Income Fund (‘‘Municipal’’) and PIMCO California Municipal Income Fund (‘‘California Municipal’’), collectively referred to as the ‘‘Funds’’, were organized as Massachusetts business trusts on May 10, 2001. Prior to commencing operations on June 29, 2001, the Funds had no operations other than matters relating to their organization and registration as non-diversified, closed-end management investment companies registered under the Investment Company Act of 1940 and the rules and regulations thereunder, as amended. Allianz Global Investors Fund Management LLC (the ‘‘Investment Manager’’), serves as the investment manager and is an indirect, wholly-owned subsidiary of Allianz Global Investors of America L.P. (‘‘Allianz Global’’). Allianz Global is an indirect majority-owned subsidiary of Allianz SE, a publicly traded insurance and financial services company. The Funds have an unlimited amount of no par value common stock authorized.
Under normal market conditions, Municipal invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from federal income taxes. Under normal market conditions, California Municipal invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal and California state income taxes. The Funds will seek to avoid bonds generating interest income which could potentially subject individuals to alternative minimum tax. The issuers’ abilities to meet their obligations may be affected by economic and political developments in a specific state or region.
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 those estimates.
In July 2006, the Financial Accounting Standards Board 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 Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Funds’ management has recently begun to evaluate the application of the Interpretation, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds’ financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (‘‘SFAS’’) 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, the Funds are in the process of reviewing SFAS 157 against their current valuation policies to determine future applicability.
In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds based upon events that have not been asserted. However, the Funds expect the risk of any loss to be remote.
The following is a summary of significant accounting policies consistently followed by the Funds:
(a) Valuation of Investments
Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. 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 Trustees. The Funds’ investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or using the last sale price on the exchange that is the primary market for such securities, or the 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 characteristics. Exchange traded options and 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,
20 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
1. Organization and Significant Accounting Policies (continued)
if the original term to maturity exceeded 60 days. The prices used by the Funds to value securities may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. The Funds’ net asset values are determined daily 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) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on the identified cost basis. Interest income is recorded on an accrual basis. Original issue discounts or premiums on debt securities purchased are accreted or amortized daily to non-taxable interest income. Market discount, if any, is accreted daily to taxable income.
(c) Federal Income Taxes
The Funds intend to distribute all of their 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.
(d) Dividends and Distributions — Common Stock
The Funds declare dividends from net investment income monthly to common shareholders. Distributions of net realized capital gains, if any, are paid at least annually. Each 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 federal income tax treatment; temporary differences do not require reclassification. To the extent dividends and/or distributions exceed current and accumulated earnings and profits for federal income tax purposes; they are reported as dividends and/or distributions of paid-in capital.
(e) Futures Contracts
A futures contract is an agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract, the Funds are required to pledge to the broker an amount of cash or securities, equal to the minimum ‘‘initial margin’’ requirements of the exchange. Pursuant to the contracts, the Funds agree to receive from or pay to the broker an amount of cash or securities equal to the daily fluctuation in the value of the contracts. Such receipts or payments are known as ‘‘variation margin’’ and are recorded by the Funds as unrealized appreciation or depreciation. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the value of the contracts at the time they were opened and the value at the time they were closed. Any unrealized appreciation or depreciation recorded is simultaneously reversed. The use of futures transactions involves the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts.
(f) Option Transactions
The Funds may purchase and write (sell) put and call options on securities for hedging purposes, risk management purposes or as part of its investment strategy. The risk associated with purchasing an option is that the Funds pay a premium whether or not the option is exercised. Additionally, the Funds bear 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 securities sold through the exercise of put options is decreased by the premiums paid.
When an option is written, the premium received is recorded as an asset with an equal liability which is subsequently marked to market to reflect the current market value of the option written. These liabilities are reflected as options written in the Statements of Assets and Liabilities. Premiums received from writing options which expire unexercised 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 purchased transactions, as a realized loss. If a call
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 21
1. Organization and Significant Accounting Policies (continued)
option written by the Funds 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 written by the Funds is exercised, the premium reduces the cost basis of the security. In writing an option, the Funds bear 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 Funds purchasing a security at a price different from the current market value.
(g) Residual Interest Municipal Bonds (‘‘RIBS’’)/Residual Interest Tax Exempt Bonds (‘‘RITES’’)
The Funds invest in RIBS and RITES whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. RIBS and RITES are created by dividing the income stream provided by the underlying bonds to create two securities, one short-term and one long-term. The interest rate on the short-term component is reset by an index or auction process normally every seven to 35 days. After income is paid on the short term securities at current rates, the residual income from the underlying bond(s) goes to the long-term securities. Therefore, rising short-term interest rates result in lower income for the longer-term portion, and visa versa. The longer-term bonds may be more volatile and less liquid than other municipal bonds of comparable maturity. Investments in RIBS and RITES typically will involve greater risk than an investment in a fixed-rate bond. The Funds may also invest in RIBS and RITES for the purpose of increasing their leverage.
(h) When-Issued/Delayed-Delivery Transactions
When-issued or delayed-delivery basis transactions involve a commitment to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Funds will set aside and maintain until the settlement date in a designated account, liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed-delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations, consequently, such fluctuations are taken into account when determining net asset value. The Funds may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a realized gain or loss. When a security on a delayed-delivery basis is sold, the Funds do not participate in future gains and losses with respect to the security.
(i) Custody Credits Earned on Cash Balances
The Funds benefit from an expense offset arrangement with their 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 Funds.
2. Investment Manager/Sub-Adviser
Each Fund has entered into an Investment Management Agreement (the ‘‘Agreements’’) with the Investment Manager. Subject to the supervision by each Fund’s Board of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, the Fund’s investment activities, business affairs and other administrative matters. Pursuant to the Agreements, the Investment Manager receives an annual fee, payable monthly, at the annual rate of 0.65% of each Fund’s average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding. In order to reduce each Fund’s expenses, the Investment Manager has contractually agreed to waive a portion of its investment management fee for each Fund at the annual rate of 0.15% of each Fund’s average daily net assets, including net assets attributable to any preferred shares that may be outstanding, through June 30, 2007, and for a declining amount thereafter through June 30, 2009.
The Investment Manager has retained its affiliate, Pacific Investment Management Company LLC (the ‘‘Sub-Adviser’’) to manage each Fund’s investments. Subject to the supervision of the Investment Manager, the Sub-Adviser makes all the Funds investment decisions. The Investment Manager, not the Funds, pays a portion of the fees it receives to the Sub-Adviser in return for its services, at the maximum annual rate of 0.37% of each Funds’ average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding. The Sub-Adviser has contractually agreed to waive a portion of the fees it is entitled to receive from the Investment Manager, such that the Sub-Adviser will receive 0.28% of each Fund’s average daily net assets, including net assets attributable to any preferred shares that may be outstanding, for the twelve-month period ended June 30, 2007, and will receive an increasing amount not to exceed 0.37% of each Fund’s average daily net assets, including net assets attributable to any preferred shares that may be outstanding thereafter through June 30, 2009.
22 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
3. Investments in Securities
For the six months ended October 31, 2006, purchases and sales of investments, other than short-term securities, were:
Municipal | California Municipal |
|||||||||
Purchases | $44,327,291 | $15,627,788 | ||||||||
Sales | 47,476,655 | 13,521,226 | ||||||||
(a) Futures contracts outstanding at October 31, 2006:
Fund | Type | Notional Amount (000) |
Expiration Date |
Unrealized Appreciation (Depreciation) |
||||||||||||||
Municipal | Long: Financial Future Euro — 90 day | $440 | 6/18/07 | $(26,025) | ||||||||||||||
Financial Future Euro — 90 day | 440 | 9/17/07 | 46,400 | |||||||||||||||
Financial Future Euro — 90 day | 440 | 12/17/07 | 97,000 | |||||||||||||||
Financial Future Euro — 90 day | 440 | 3/17/08 | 119,000 | |||||||||||||||
Short: U.S. Treasury Bond Futures | (296) | 12/19/06 | (767,750) | |||||||||||||||
U.S. Treasury Notes 10 yr. Futures | (368) | 12/19/06 | (331,907) | |||||||||||||||
$(863,282) | ||||||||||||||||||
California Municipal | Long: Financial Future Euro — 90 day | $213 | 6/18/07 | $(31,326) | ||||||||||||||
Financial Future Euro — 90 day | 213 | 9/17/07 | 2,838 | |||||||||||||||
Financial Future Euro — 90 day | 213 | 12/17/07 | 27,275 | |||||||||||||||
Financial Future Euro — 90 day | 213 | 3/17/08 | 37,900 | |||||||||||||||
Short: U.S. Treasury Bond Futures | (96) | 12/19/06 | (249,000) | |||||||||||||||
U.S. Treasury Notes 10 yr. Futures | (109) | 12/19/06 | (109,000) | |||||||||||||||
$(321,313) | ||||||||||||||||||
(b) Transactions in options written for the six months ended October 31, 2006:
Contracts | Premiums | |||||||||
Municipal: | ||||||||||
Options outstanding, April 30, 2006 | 2,141 | $544,557 | ||||||||
Options written | 2,782 | 404,240 | ||||||||
Options expired | (2,510) | (491,749) | ||||||||
Options terminated in closing purchase transactions | (1,577) | (303,015) | ||||||||
Options outstanding, October 31, 2006 | 836 | $154,033 | ||||||||
California Municipal: | ||||||||||
Options outstanding, April 30, 2006 | 555 | $139,915 | ||||||||
Options written | 887 | 118,680 | ||||||||
Options expired | (821) | (143,691) | ||||||||
Options terminated in closing purchase transactions | (398) | (73,816) | ||||||||
Options outstanding, October 31, 2006 | 223 | $41,088 | ||||||||
4. Income Tax Information
The cost of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at October 31, 2006 were:
Cost of Investments |
Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation |
|||||||||||||||
Municipal | $512,467,388 | $46,479,647 | $1,759,186 | $44,720,461 | ||||||||||||||
California Municipal | 382,139,174 | 34,359,832 | — | 34,359,832 | ||||||||||||||
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 23
5. Auction Preferred Shares
Municipal has issued 1,600 shares of Preferred Shares Series A, 1,600 shares of Preferred Shares Series B, 1,600 shares of Preferred Shares Series C, 1,600 shares of Preferred Shares Series D and 1,600 shares of Preferred Shares Series E, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.
California Municipal has issued 2,000 shares of Preferred Shares Series A, 2,000 shares of Preferred Shares Series B and 2,000 shares of Preferred Shares Series C, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.
Dividends and distributions of net realized long-term capital gains, if any, are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures.
For the six months ended October 31, 2006, the annualized dividend rates ranged from:
High | Low | At October 31, 2006 | ||||||||||||
Municipal: | ||||||||||||||
Series A | 3.85% | 3.00% | 3.40% | |||||||||||
Series B | 3.88% | 2.13% | 3.25% | |||||||||||
Series C | 4.00% | 3.10% | 3.20% | |||||||||||
Series D | 3.99% | 2.11% | 3.10% | |||||||||||
Series E | 4.00% | 3.00% | 3.25% | |||||||||||
California Municipal: | ||||||||||||||
Series A | 3.80% | 2.50% | 2.75% | |||||||||||
Series B | 3.90% | 2.00% | 3.30% | |||||||||||
Series C | 3.60% | 2.00% | 2.95% | |||||||||||
The Funds are subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Funds from declaring any dividends or distributions to common shareholders or repurchasing common shares and/or triggering the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote separately as a class to elect two Trustees and on any matters affecting the rights of the Preferred Shares.
6. Subsequent Common Dividend Declarations
On November 1, 2006, the following dividends were declared to common shareholders payable December 1, 2006 to shareholders of record on November 13, 2006:
Municipal | $0.08125 per common share | |||||
California Municipal | $0.077 per common share | |||||
On December 1, 2006 the following dividends were declared to common shareholders payable December 29, 2006 to shareholders of record on December 11, 2006:
Municipal | $0.08125 per common share | |||||
California Municipal | $0.077 per common share | |||||
7. Legal Proceedings
In June and September 2004, the Investment Manager, certain of its affiliates (including Allianz Global Investors Distributors LLC and PEA Capital LLC) and Allianz Global, agreed to settle, without admitting or denying the allegations, claims brought by the Securities and Exchange Commission (the ‘‘Commission’’), the New Jersey Attorney General and the California 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. Two settlements (with the Commission and New Jersey) related to an alleged ‘‘market timing’’ arrangement in certain open-end funds sub-advised by PEA Capital LLC. Two settlements (with the Commission and California) related to the alleged use of cash and fund portfolio commissions to finance ‘‘shelf-space’’ arrangements with broker-dealers for open-end funds. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims related to market
24 PIMCO Municipal Income Funds Semi-Annual Report | 10.31.06
7. Legal Proceedings (continued)
timing and $20.6 million to settle the claims related to shelf space. In addition to monetary payments, the settling parties agreed to undertake certain corporate governance, compliance and disclosure reforms related to market timing, brokerage commissions, revenue sharing and shelf space arrangements, and consented to cease and desist orders and censures. The settling parties did not admit or deny the findings in these settlements. None of the settlements allege that any inappropriate activity took place with respect to the Funds.
Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in fifteen lawsuits filed in various jurisdictions. Eleven of those lawsuits concern market timing and have been transferred to and consolidated for pre-trial proceedings in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland; the other four lawsuits concern revenue sharing and have been consolidated into a single action in the U.S. District Court for the District of Connecticut. The lawsuits generally relate to the same allegations that are the subject of the regulatory proceedings discussed above. The lawsuits seek, among other things, unspecified compensatory damages plus interest and, in some cases, punitive damages, the rescission of investment advisory contracts, the return of fees paid under those contracts, restitution, and waiver of or return of certain sales charges paid by open-end fund shareholders.
The Investment Manager and the Sub-Adviser believe that these matters are not likely to have a material adverse effect on the Funds or on their ability to perform their respective investment advisory activities relating to the Funds.
The foregoing speaks only as of the date hereof.
10.31.06 | PIMCO Municipal Income Funds Semi-Annual Report 25
Six Months ended October 31, 2006 (unaudited) |
Year Ended | For the period June 29, 2001* through April 30, 2002 |
||||||||||||||||||||||||
April 30, 2006 | April 30, 2005 | April 30, 2004 | April 30, 2003 | |||||||||||||||||||||||
Net asset value, beginning of period | $14.54 | $14.84 | $14.11 | $14.03 | $14.22 | $14.33 | ** | |||||||||||||||||||
Investment Operations: | ||||||||||||||||||||||||||
Net investment income | 0.53 | 1.10 | 1.15 | 1.16 | 1.19 | 0.91 | ||||||||||||||||||||
Net realized and change in unrealized gain (loss) on investments, futures contracts, and options written | 0.59 | (0.21 | ) | 0.68 | (0.03 | ) | (0.26 | ) | (0.07 | ) | ||||||||||||||||
Total from investment operations | 1.12 | 0.89 | 1.83 | 1.13 | 0.93 | 0.84 | ||||||||||||||||||||
Dividends and Distributions on Preferred Shares from: | ||||||||||||||||||||||||||
Net investment income | (0.14 | ) | (0.21 | ) | (0.12 | ) |