| PIMCO Municipal Income Funds II Notes to Financial Statements |
| May 31, 2005 |
|
4. Income Tax Information (continued)
At May 31, 2005, the tax character of distributable earnings of $5,483,978 was comprised entirely of tax exempt income.
At May 31, 2005, Municipal II had a capital loss carryforward of $64,766,329, ($10,260,913 of which will expire in 2012 and $54,505,416 which will expire in 2013), available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed.
The difference between book and tax basis unrealized appreciation/depreciation is attributable to wash sales.
In accordance with U.S. Treasury regulations, Municipal II elected to defer realized capital losses arising after October 31, 2004 of $25,717,123. Such losses are treated for tax purposes as arising on June 1, 2005.
California Municipal II:
The tax character of dividends paid were:
| | Year ended | | Year ended | |
| | May 31, 2005 | | May 31, 2004 | |
|
|
|
|
|
| Ordinary Income | $ 766,357 | | $ 649,740 | |
| Tax Exempt Income | 32,313,005 | | 29,553,675 | |
At May 31, 2005, the tax character of distributable earnings of $1,703,352 was comprised entirely of tax exempt income.
At May 31, 2005, California Municipal II had a capital loss carryforward of $23,665,963 ($1,122,615 of which will expire in 2011, $6,214,426 of which will expire in 2012 and $16,328,922 of which will expire in 2013) , available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed.
In accordance with U.S. Treasury regulations, California Municipal II elected to defer realized capital losses arising after October 31, 2004 of $10,015,620. Such losses are treated for tax purposes as arising on June 1, 2005.
New York Municipal II:
The tax character of dividends paid were:
| | Year ended | | Year ended | |
| | May 31, 2005 | | May 31, 2004 | |
|
|
|
|
|
| Ordinary Income | $ 146,663 | | $ 66,166 | |
| Tax Exempt Income | 11,365,678 | | 10,361,403 | |
At May 31, 2005, New York Municipal II did not have any distributable earnings.
At May 31, 2005, New York Municipal II had a capital loss carryforward of $8,753,592 ($214,685 of which will expire in 2011, $2,783,230 of which will expire in 2012 and $5,755,677 of which will expire in 2013), available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed.
In accordance with U.S. Treasury regulations, New York Municipal II elected to defer realized capital losses arising after October 31, 2004 of $619,099. Such losses are treated for tax purposes as arising on June 1, 2005.
The cost of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at May 31, 2005 were:
| | | | Gross | | Gross | | Net | |
| | Cost of | | Unrealized | | Unrealized | | Unrealized | |
| | Investments | | Appreciation | | Depreciation | | Appreciation | |
|
|
|
|
|
|
|
|
|
| Municipal II | $1,238,100,423 | | $120,070,949 | | $654,810 | | $119,416,139 | |
| California Municipal II | 653,235,915 | | 44,316,983 | | 106,526 | | 44,210,457 | |
| New York Municipal II | 236,892,699 | | 13,892,696 | | 16,283 | | 13,876,413 | |
34 PIMCO Municipal Income Funds II Annual Report | 5.31.05
| PIMCO Municipal Income Funds II Notes to Financial Statements |
| May 31, 2005 |
|
5. Auction Preferred Shares
Municipal II has issued 4,040 shares of Preferred Shares Series A, 4,040 shares of Preferred Shares Series B, 4,040 shares of Preferred Shares Series C, 4,040 shares of Preferred Shares Series D and 4,040 shares of Preferred Shares Series E, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.
California Municipal II has issued 2,080 shares of Preferred Shares Series A, 2,080 shares of Preferred Shares Series B, 2,080 shares of Preferred Shares Series C, 2,080 shares of Preferred Shares Series D and 2,080 shares of Preferred Shares Series E, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.
New York Municipal II has issued 1,800 shares of Preferred Shares Series A and 1,800 shares of Preferred Shares Series B, each with a net asset and liquidation value of $25,000 per share, plus accrued dividends.
Dividends are accumulated daily at an annual rate set through auction procedures. Distributions of net realized capital gains, if any, are paid annually.
For the year ended May 31, 2005, the annualized dividend rates ranged from:
| | | High | | | Low | | | At May 31, 2005 |
|
|
|
|
|
|
|
|
|
|
| Municipal II: | | | | | | | | | |
| Series A | | 2.75 | % | | 0.99 | % | | 2.55 | % |
| Series B | | 2.80 | % | | 1.00 | % | | 2.60 | % |
| Series C | | 2.35 | % | | 0.70 | % | | 2.00 | % |
| Series D | | 2.75 | % | | 0.99 | % | | 2.55 | % |
| Series E | | 2.82 | % | | 1.00 | % | | 2.25 | % |
| | | | | | | | | | |
| California Municipal II: | | | | | | | | | |
| Series A | | 2.75 | % | | 0.62 | % | | 1.85 | % |
| Series B | | 2.60 | % | | 0.70 | % | | 2.00 | % |
| Series C | | 2.75 | % | | 0.75 | % | | 2.55 | % |
| Series D | | 2.35 | % | | 0.98 | % | | 1.84 | % |
| Series E | | 2.40 | % | | 0.70 | % | | 2.20 | % |
| | | | | | | | | | |
| New York Municipal II: | | | | | | | | | |
| Series A | | 2.63 | % | | 0.90 | % | | 2.20 | % |
| Series B | | 2.50 | % | | 0.60 | % | | 1.80 | % |
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.
6. Subsequent Common Dividend Declarations
On June 1, 2005, the following dividends were declared to common shareholders payable July 1, 2005 to shareholders of record on June 10, 2005:
| | Municipal II | $0.084375 per common share |
| | California Municipal II | $0.08125 per common share |
| | New York Municipal II | $0.08125 per common share |
5.31.05 | PIMCO Municipal Income Funds II Annual Report 35
| PIMCO Municipal Income Funds II Notes to Financial Statements |
| May 31, 2005 |
|
6. Subsequent Common Dividend Declarations (continued)
On July 1, 2005, the following dividends were declared to common shareholders payable August 1, 2005 to shareholders of record on July 15, 2005:
| | Municipal II | $0.084375 per common share |
| | California Municipal II | $0.08125 per common share |
| | New York Municipal II | $0.08125 per common share |
7. Legal Proceedings
On September 13, 2004, the Securities and Exchange Commission (the "Commission") announced that the Investment Manager and certain of its affiliates (together with the Investment Manager, the "Affiliates") had agreed to a settlement of charges that they and certain of their officers had, among other things, violated various antifraud provisions of the federal securities laws in connection with an alleged market-timing arrangement involving trading of shares of certain open-end investment companies (‘‘open-end funds’’) advised or distributed by these certain affiliates. In their settlement with the Commission, the Affiliates consented to the entry of an order by the Commission and, without admitting or denying the findings contained in the order, agreed to implement certain compliance and governance changes and consented to cease-and-desist orders and censures. In addition, the Affiliates agreed to pay civil money penalties in the aggregate amount of $40 million and to pay disgorgement in the amount of $10 million, for an aggregate payment of $50 million. In connection with the settlement, the Affiliates have been dismissed from the related complaint the Commission filed on May 6, 2004 in the U.S. District Court in the Southern District of New York. Neither the complaint nor the order alleges any inappropriate activity took place with respect to the Funds.
In a related action on June 1, 2004, the Attorney General of the State of New Jersey (‘‘NJAG’’) announced that it had entered into a settlement agreement with Allianz Global and the Affiliates, in connection with a complaint filed by the NJAG on February 17, 2004. The NJAG dismissed claims against the Sub-Adviser, which had been part of the same complaint. In the settlement, Allianz Global and other named affiliates neither admitted nor denied the allegations or conclusions of law, but did agree to pay New Jersey a civil fine of $15 million and $3 million for investigative costs and further potential enforcement initiatives against unrelated parties. They also undertook to implement certain governance changes. The complaint relating to the settlement contained allegations arising out of the same matters that were the subject of the Commission order regarding market-timing described above and does not allege any inappropriate activity took place with respect to the Funds.
On September 15, 2004, the Commission announced that the Affiliates had agreed to settle an enforcement action in connection with charges that they violated various antifraud and other provisions of federal securities laws as a result of, among other things, their failure to disclose to the board of trustees and shareholders of various open-end funds advised or distributed by the Affiliates material facts and conflicts of interest that arose from their use of brokerage commissions on portfolio transactions to pay for so-called ‘‘shelf space’’ arrangements with certain broker-dealers. In their settlement with the Commission, the Affiliates consented to the entry of an order by the Commission without admitting or denying the findings contained in the order. In connection with the settlement, the Affiliates agreed to undertake certain compliance and disclosure reforms and consented to cease-and-desist orders and censures. In addition, the Affiliates agreed to pay a civil money penalty of $5 million and to pay disgorgement of approximately $6.6 million based upon the aggregate amount of brokerage commissions alleged to have been paid by such open-end funds in connection with these shelf-space arrangements (and related interest). In a related action, the California Attorney General announced on September 15, 2004 that it had entered into an agreement with an affiliate of the Investment Manager in resolution of an investigation into matters that are similar to those discussed in the Commission order. The settlement agreement resolves matters described in a complaint filed contemporaneously by the California Attorney General in the Superior Court of the State of California alleging, among other things, that this affiliate violated certain antifraud provisions of California law by failing to disclose matters related to the shelf-space arrangements described above. In the settlement agreement, the affiliate did not admit to any liability but agreed to pay $5 million in civil penalties and $4 million in recognition of the California Attorney General’s fees and costs associated with the investigation and related matters. Neither the Commission order nor the California Attorney General’s complaint alleges any inappropriate activity took place with respect to the Funds.
On April 11, 2005, the Attorney General of the State of West Virginia filed a complaint in the Circuit Court of Marshall County, West Virginia (the "West Virginia Complaint") against the Investment Manager and certain Affiliates based on
36 PIMCO Municipal Income Funds II Annual Report | 5.31.05
| PIMCO Municipal Income Funds II Notes to Financial Statements |
| May 31, 2005 |
|
7. Legal Proceedings (continued)
the same circumstances as those cited in the 2004 settlements with the Commission and NJAG involving alleged "market timing" activities described above. The West Virginia Complaint alleges, among other things, that the Investment Manager and certain Affiliates improperly allowed broker-dealers, hedge funds and investment advisors to engage in frequent trading of various open-end funds advised or distributed by the Affiliates in violation of the open end funds’ stated restrictions on "market timing." As of the date of this report, the West Virginia Complaint has not been formally served upon the Investment Manager or the Affiliates. The West Virginia Complaint also names numerous other defendants unaffiliated with the Affiliates in separate claims alleging improper market timing and/or late trading of open-ended investment companies advised or distributed by such other defendants. The West Virginia Complaint seeks injunctive relief, civil monetary penalties, investigative costs and attorney’s fees. The West Virginia Complaint does not allege that any inappropriate activity took place with respect to the Funds.
Since February 2004, certain of the Affiliates and their employees have been named as defendants in a total of 14 lawsuits filed in one of the following: U.S. District Court in the Southern District of New York, the Central District of California and the Districts of New Jersey and Connecticut. Ten of those lawsuits concern ‘‘market timing,’’ and they have been transferred to and consolidated for pre-trial proceedings in the U.S. District Court for the District of Maryland; the remaining four lawsuits concern ‘‘revenue sharing’’ with brokers offering ‘‘shelf space’’ and have been consolidated into a single action in the U.S. District Court for the District of Connecticut. The lawsuits have been commenced as putative class actions on behalf of investors who purchased, held or redeemed shares of affiliated funds during specified periods or as derivative actions on behalf of the funds.
The lawsuits generally relate to the same facts 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 and restitution. The Investment Manager believes that other similar lawsuits may be filed in federal or state courts naming as defendants the Investment Adviser, the Affiliates, Allianz Global, the Funds, other open- and closed-end funds advised or distributed by the Investment Manager and/or its affiliates, the boards of directors or trustees of those funds, and/or other affiliates and their employees. Under Section 9(a) of the 1940 Act, if any of the various regulatory proceedings or lawsuits were to result in a court injunction against the Investment Manager, Allianz Global and/or their affiliates, they and their affiliates would, in the absence of exemptive relief granted by the Commission, be barred from serving as an investment manager/sub-adviser or principal underwriter for any registered investment company, including the Funds. In connection with an inquiry from the Commission concerning the status of the New Jersey settlement described above under Section 9(a), the Investment Manager and certain of its affiliates (together, the ‘‘Applicants’’) have sought exemptive relief from the Commission under Section 9(c) of the 1940 Act.
The Commission has granted the Applicants a temporary exemption from the provisions of Section 9(a) with respect to the New Jersey settlement until the earlier of (i) September 13, 2006 and (ii) the date on which the Commission takes final action on their application for a permanent order. There is no assurance that the Commission will issue a permanent order. If the West Virginia Attorney General were to obtain a court injunction against the Investment Manager or the Affiliates, the Investment Manager or the Affiliates would, in turn, seek exemptive relief under Section 9(c) with respect to that matter, although there is no assurance that such exemptive relief would be granted.
A putative class action lawsuit captioned Charles Mutchka et al. v. Brent R. Harris, et al., filed in January 2005 by and on behalf of individual shareholders of certain open-end funds that hold equity securities and that are sponsored by the Investment Manager and the Affiliates, is currently pending in the federal district court for the Central District of California. The plaintiff alleges that fund trustees, investment advisers and affiliates breached fiduciary duties and duties of care by failing to ensure that the open-end funds participated in securities class action settlements for which those funds were eligible. The plaintiff has claimed as damages disgorgement of fees paid to the investment advisers, compensatory damages and punitive damages.
The Investment Manager believes that the claims made in the lawsuit against the Investment Manager and the Affiliates are baseless, and the Investment Manager and the Affiliates intend to vigorously defend the lawsuit. As of the date hereof, the Investment Manager believes a decision, if any, against the defendants would have no material adverse effect on the Funds or the ability of the Investment Manager or the Sub-Adviser to perform their duties under the investment management or portfolio management agreements, as the case may be.
5.31.05 | PIMCO Municipal Income Funds II Annual Report 37
| PIMCO Municipal Income Funds II Notes to Financial Statements |
| May 31, 2005 |
|
7. Legal Proceedings (continued)
It is possible that these matters and/or other developments resulting from these matters could lead to a decrease in the market price of the Funds’ shares or other adverse consequences to the Funds and their shareholders. However, 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 the Investment Manager’s or the Sub-Adviser’s ability to perform their respective investment advisory services related to the Funds.
The foregoing speaks only as of the date hereof. There may be additional litigation or regulatory developments in connection with the matters discussed above.
38 PIMCO Municipal Income Funds II Annual Report | 5.31.05
| PIMCO Municipal Income Funds II Financial Highlights |
| For a share of common stock outstanding throughout each period |
| |
|
| | | Municipal II |
| |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | For the Period |
| | | | Year Ended | | | June 28, 2002* |
| |
|
|
| | | through |
| | | | May 31, 2005 | | | May 31, 2004 | | | May 31, 2003 |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, beginning of period | | $ | 14.01 | | | $ | 14.66 | | | $ | 14.33 | ** |
| |
|
|
| |
|
|
| |
|
|
|
| Income from Investment Operations: | | | | | | | | | | | | |
| Net investment income | | | 1.11 | | | | 1.17 | | | | 0.93 | |
| |
|
|
| |
|
|
| |
|
|
|
| Net realized and unrealized gain (loss) on investments, | | | | | | | | | | | | |
| futures contracts, and options written | | | 0.84 | | | | (0.77 | ) | | | 0.53 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total from investment operations | | | 1.95 | | | | 0.40 | | | | 1.46 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends and Distributions on Preferred Shares from: | | | | | | | | | | | | |
| Net investment income | | | (0.14 | ) | | | (0.08 | ) | | | (0.08 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net realized gains | | | — | | | | — | | | | (0.01 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Total dividends and distributions on preferred shares | | | (0.14 | ) | | | (0.08 | ) | | | (0.09 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net increase in net assets applicable to common | | | | | | | | | | | | |
| shareholders resulting from investment operations | | | 1.81 | | | | 0.32 | | | | 1.37 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends and Distributions to Common Shareholders from: | | | | | | | | | | | | |
| Net investment income | | | (1.01 | ) | | | (0.97 | ) | | | (0.84 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net realized gains | | | — | | | | — | | | | (0.09 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Total dividends and distributions to common shareholders | | | (1.01 | ) | | | (0.97 | ) | | | (0.93 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Capital Share Transactions: | | | | | | | | | | | | |
| Common stock offering costs charged to paid-in capital | | | | | | | | | | | | |
| in excess of par | | | — | | | | — | | | | (0.02 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares offering costs/underwriting discounts | | | | | | | | | | | | |
| charged to paid-in capital in excess of par | | | — | | | | — | | | | (0.09 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Total capital share transactions | | | — | | | | — | | | | (0.11 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, end of period | | $ | 14.81 | | | $ | 14.01 | | | $ | 14.66 | |
| |
|
|
| |
|
|
| |
|
|
|
| Market price, end of period | | $ | 15.02 | | | $ | 13.31 | | | $ | 14.80 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total Investment Return (1) | | | 21.00 | % | | | (3.69 | )% | | | 5.19 | % |
| |
|
|
| |
|
|
| |
|
|
|
| RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | |
| Net assets applicable to common shareholders, | | | | | | | | | | | | |
| end of period (000) | | $ | 862,290 | | | $ | 812,670 | | | $ | 846,885 | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of expenses to average net assets (2)(3)(5) | | | 1.02 | % | | | 1.03 | % | | | 0.95%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of net investment income to average net assets (2)(5) | | | 7.71 | % | | | 8.16 | % | | | 6.99%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares asset coverage per share | | $ | 67,676 | | | $ | 65,224 | | | $ | 66,920 | |
| |
|
|
| |
|
|
| |
|
|
|
| Portfolio turnover | | | 9 | % | | | 26 | % | | | 27 | % |
| |
|
|
| |
|
|
| |
|
|
|
| * | Commencement of operations |
| ** | Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. |
| (1) | Total investment return is calculated assuming a purchase of shares of common stock at the current market price on the first day of each period and a sale of shares at the current market price on the last day of each period reported. |
| | Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized. |
| (2) | Calculated on the basis of income and expenses applicable to both common shares and preferred shares relative to the average net assets of common shareholders. |
| (3) | Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See note 1(i) in Notes to Financial Statements). |
| (4) | Annualized. |
| (5) | During the periods indicated above, the Investment manager contractually waived a portion of its investment management fee. If such a waiver had not been in effect, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 1.26% and 7.47%, respectively for the year ended May 31, 2005; 1.28% and 7.92%, respectively for the year ended May 31, 2004 and 1.18% (annualized) and 6.76% (annualized), respectively for the period June 28, 2002 (commencement of operations) through May 31, 2003. |
| |
See accompanying Notes to Financial Statements | 5.31.05 | PIMCO Municipal Income Funds II Annual Report 39
| PIMCO Municipal Income Funds II Financial Highlights |
| For a share of common stock outstanding throughout each period |
| |
|
| | | | California Municipal II |
| |
|
|
|
| | | | | | | | | | | | For the Period |
| | | | Year Ended | | | June 28, 2002* |
| |
|
|
| | | through |
| | | | May 31, 2005 | | | May 31, 2004 | | | May 31, 2003 |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, beginning of period | | $ | 13.53 | | | $ | 14.66 | | | $ | 14.33 | ** |
| |
|
|
| |
|
|
| |
|
|
|
| Income from Investment Operations: | | | | | | | | | | | | |
| Net investment income | | | 1.05 | | | | 1.13 | | | | 0.87 | |
| |
|
|
| |
|
|
| |
|
|
|
| Net realized and unrealized gain (loss) on investments, | | | | | | | | | | | | |
| futures contracts, and options written | | | 1.13 | | | | (1.26 | ) | | | 0.46 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total from investment operations | | | 2.18 | | | | (0.13 | ) | | | 1.33 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends on Preferred Shares from | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.07 | ) | | | (0.07 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net increase (decrease) in net assets applicable to common | | | | | | | | | | | | |
| shareholders resulting from investment operations | | | 2.06 | | | | (0.20 | ) | | | 1.26 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends to Common Shareholders from | | | | | | | | | | | | |
| Net investment income | | | (0.98 | ) | | | (0.93 | ) | | | (0.81 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Capital Share Transactions: | | | | | | | | | | | | |
| Common stock offering costs charged to paid-in capital | | | | | | | | | | | | |
| in excess of par | | | — | | | | — | | | | (0.02 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares offering costs/underwriting discounts | | | | | | | | | | | | |
| charged to paid-in capital in excess of par | | | — | | | | — | | | | (0.10 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Total capital share transactions | | | — | | | | — | | | | (0.12 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, end of period | | $ | 14.61 | | | $ | 13.53 | | | $ | 14.66 | |
| |
|
|
| |
|
|
| |
|
|
|
| Market price, end of period | | $ | 14.76 | | | $ | 13.27 | | | $ | 14.78 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total Investment Return (1) | | | 19.14 | % | | | (3.92 | )% | | | 4.23 | % |
| |
|
|
| |
|
|
| |
|
|
|
| RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | |
| Net assets applicable to common shareholders, | | | | | | | | | | | | |
| end of period (000) | | $ | 441,596 | | | $ | 407,659 | | | $ | 439,970 | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of expenses to average net assets (2)(3)(5) | | | 1.06 | % | | | 1.07 | % | | | 0.97%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of net investment income to average net assets (2)(5) | | | 7.37 | % | | | 8.08 | % | | | 6.56%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares asset coverage per share | | $ | 67,451 | | | $ | 64,191 | | | $ | 67,301 | |
| |
|
|
| |
|
|
| |
|
|
|
| Portfolio turnover | | | 9 | % | | | 43 | % | | | 84 | % |
| |
|
|
| |
|
|
| |
|
|
|
| * | Commencement of operations. |
| ** | Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. |
| (1) | Total investment return is calculated assuming a purchase of shares of common stock at the current market price on the first day of each period and a sale of shares at the current market price on the last day of each period reported. |
| | Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized. |
| (2) | Calculated on the basis of income and expenses applicable to both common shares and preferred shares relative to the average net assets of common shareholders. |
| (3) | Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See note 1(i) in Notes to Financial Statements). |
| (4) | Annualized. |
| (5) | During the periods indicated above, the Investment manager contractually waived a portion of its investment man- agement fee. If such a waiver had not been in effect, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 1.30% and 7.13%, respectively for the year ended May 31, 2005; 1.31% and 7.83%, respectively for the year ended May 31, 2004 and 1.20% (annualized) and 6.34% (annu- alized), respectively for the period June 28, 2002 (commencement of operations) through May 31, 2003. |
| |
40 PIMCO Municipal Income Funds II Annual Report | 5.31.05 | See accompanying Notes to Financial Statements
| PIMCO Municipal Income Funds II Financial Highlights |
| For a share of common stock outstanding throughout each period |
| |
|
| | | | New York Municipal II |
| |
|
|
|
| | | | | | | | | | | | For the Period |
| | | | Year Ended | | | June 28, 2002* |
| |
|
|
| | | through |
| | | | May 31, 2005 | | | May 31, 2004 | | | May 31, 2003 |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, beginning of period | | $ | 13.54 | | | $ | 14.45 | | | $ | 14.33 | ** |
| |
|
|
| |
|
|
| |
|
|
|
| Income from Investment Operations: | | | | | | | | | | | | |
| Net investment income | | | 1.07 | | | | 1.06 | | | | 0.86 | |
| |
|
|
| |
|
|
| |
|
|
|
| Net realized and unrealized gain (loss) on investments, | | | | | | | | | | | | |
| futures contracts, and options written | | | 1.12 | | | | (0.97 | ) | | | 0.28 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total from investment operations | | | 2.19 | | | | 0.09 | | | | 1.14 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends on Preferred Shares from | | | | | | | | | | | | |
| Net investment income | | | (0.13 | ) | | | (0.07 | ) | | | (0.08 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net increase in net assets applicable to common | | | | | | | | | | | | |
| shareholders resulting from investment operations | | | 2.06 | | | | 0.02 | | | | 1.06 | |
| |
|
|
| |
|
|
| |
|
|
|
| Dividends to Common Shareholders from | | | | | | | | | | | | |
| Net investment income | | | (0.98 | ) | | | (0.93 | ) | | | (0.81 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Capital Share Transactions: | | | | | | | | | | | | |
| Common stock offering costs charged to paid-in capital | | | | | | | | | | | | |
| in excess of par | | | — | | | | — | | | | (0.03 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares offering costs/underwriting discounts | | | | | | | | | | | | |
| charged to paid-in capital in excess of par | | | — | | | | — | | | | (0.10 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Total capital share transactions | | | — | | | | — | | | | (0.13 | ) |
| |
|
|
| |
|
|
| |
|
|
|
| Net asset value, end of period | | $ | 14.62 | | | $ | 13.54 | | | $ | 14.45 | |
| |
|
|
| |
|
|
| |
|
|
|
| Market price, end of period | | $ | 14.80 | | | $ | 13.05 | | | $ | 14.71 | |
| |
|
|
| |
|
|
| |
|
|
|
| Total Investment Return (1) | | | 21.45 | % | | | (5.15 | )% | | | 3.76 | % |
| |
|
|
| |
|
|
| |
|
|
|
| RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | |
| Net assets applicable to common shareholders, | | | | | | | | | | | | |
| end of period (000) | | $ | 152,812 | | | $ | 140,958 | | | $ | 149,606 | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of expenses to average net assets (2)(3)(5) | | | 1.14 | % | | | 1.15 | % | | | 1.02%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Ratio of net investment income to average net assets (2)(5) | | | 7.53 | % | | | 7.58 | % | | | 6.47%(4) | |
| |
|
|
| |
|
|
| |
|
|
|
| Preferred shares asset coverage per share | | $ | 67,439 | | | $ | 64,148 | | | $ | 66,552 | |
| |
|
|
| |
|
|
| |
|
|
|
| Portfolio turnover | | | 18 | % | | | 18 | % | | | 27 | % |
| |
|
|
| |
|
|
| |
|
|
|
| * | Commencement of operations. |
| ** | Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. |
| (1) | Total investment return is calculated assuming a purchase of shares of common stock at the current market price on the first day of each period and a sale of shares at the current market price on the last day of each period reported. |
| | Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. Total investment return for a period of less than one year is not annualized. |
| (2) | Calculated on the basis of income and expenses applicable to both common shares and preferred shares relative to the average net assets of common shareholders. |
| (3) | Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See note 1(i) in Notes to Financial Statements). |
| (4) | Annualized. |
| (5) | During the periods indicated above, the Investment manager contractually waived a portion of its investment management fee. If such a waiver had not been in effect, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 1.38% and 7.29%, respectively for the year ended May 31, 2005; 1.39% and 7.34%, respectively for the year ended May 31, 2004 and 1.25% (annualized) and 6.25% (annualized), respectively for the period June 28, 2002 (commencement of operations) through May 31, 2003. |
| |
See accompanying Notes to Financial Statements | 5.31.05 | PIMCO Municipal Income Funds II Annual Report 41
| PIMCO Municipal Income Funds II | Report of Independent Registered |
| | Public Accounting Firm |
|
To the Shareholders and the Board of Trustees of
PIMCO Municipal Income Fund II
PIMCO California Municipal Income Fund II
PIMCO New York Municipal income Fund II
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets applicable to common shareholders and the financial highlights present fairly, in all material respects, the financial position of PIMCO Municipal Income Fund II, PIMCO California Municipal Income Fund II and PIMCO New York Municipal Income Fund II (collectively hereafter referred to as the “Funds”) at May 31, 2005, the results of each of their operations for the year then ended, the changes in each of their net assets applicable to common shareholders for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and for the period June 28, 2002 (commencement of operations) through May 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
July 22, 2005
42 PIMCO Municipal Income Funds II Annual Report | 5.31.05
| PIMCO Municipal Income Funds II | Privacy Policy, Proxy Voting Policies & |
| | Procedures, Other Information (unaudited) |
|
Privacy Policy:
Our Commitment to You
We consider customer privacy to be a fundamental aspect of our relationship with clients. We are committed to maintaining the confidentiality, integrity, and security of our current, prospective and former clients’ personal information. We have developed policies designed to protect this confidentiality, while allowing client needs to be served.
Obtaining Personal Information
In the course of providing you with products and services, we may obtain non-public personal information about you. This information may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser or consultant, and/or from information captured on our internet web sites.
Respecting Your Privacy
We do not disclose any personal or account information provided by you or gathered by us to non-affiliated third parties, except as required or permitted by law. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, conducting research on client satisfaction, and gathering shareholder proxies. We may also retain non-affiliated companies to market our products and enter in joint marketing agreements with other companies. These companies may have access to your personal and account information, but are permitted to use the information solely to provide the specific service or as otherwise permitted by law. We may also provide your personal and account information to your brokerage or financial advisory firm and/or to your financial adviser or consultant.
Sharing Information with Third Parties
We do reserve the right to disclose or report personal information to non-affiliated third parties in limited circumstances where we believe in good faith that disclosure is required under law, to cooperate with regulators or law enforcement authorities, to protect our rights or property, or upon reasonable request by any mutual fund in which you have chosen to invest. In addition, we may disclose information about you or your accounts to a non-affiliated third party at your request or if you consent in writing to the disclosure.
Sharing Information with Affiliates
We may share client information with our affiliates in connection with servicing your account or to provide you with information about products and services that we believe may be of interest to you. The information we share may include, for example, your participation in our mutual funds or other investment programs, your ownership of certain types of accounts (such as IRAs), or other data about your accounts. Our affiliates, in turn, are not permitted to share your information with non-affiliated entities, except as required or permitted by law.
Implementation of Procedures
We take seriously the obligation to safeguard your non-public personal information. We have implemented procedures designed to restrict access to your non-public personal information to our personnel who need to know that information to provide products or services to you. To guard your non-public personal information, physical, electronic, and procedural safeguards are in place.
Proxy Voting Policies & Procedures:
A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the twelve months ended June 30, 2004 is available: (i) without charge, upon request, by calling the Funds’ transfer agent at (800) 331-1710; (ii) on the Funds’ website at www.allianzinvestors.com; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.
Other Information:
Since May 31, 2004, there have been no: (i) material changes in the Funds’ investment objectives or policies; (ii) changes to the Funds’ charter or by-laws; (iii) material changes in the principal risk factors associated with investment in the Funds; (iv) change in person primarily responsible for the day-to-day management of the Funds’ portfolio.
5.31.05 | PIMCO Municipal Income Funds II Annual Report 43
| PIMCO Municipal Income Funds II Tax Information (unaudited) |
|
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Funds to advise shareholders within 60 days of the Funds’ tax year-end (May 31, 2005) as to the federal tax status of dividends and distributions received by shareholders during such tax period. Accordingly, please note that substantially all dividends paid from net investment income from the Funds during the tax period ended May 31, 2005 were federally exempt interest dividends. However, the Funds invested in municipal bonds containing market discount, whose accretion is taxable. Accordingly, the percentage of dividends paid from net investment income during the tax period which are taxable were:
| Municipal II | 4.84 | % |
| California Municipal II | 2.32 | % |
| New York Municipal II | 1.27 | % |
Since the Funds’ fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2005. In January 2006, shareholders will be advised on IRS Form 1099 DIV as to the federal tax status of the dividends and distributions received during calendar 2005. The amount that will be reported will be the amount to use on your 2005 federal income tax return and may differ from the amount which must be reported in connection with each Funds’ tax year ended May 31, 2005. Shareholders are advised to consult their tax advisers as to the federal, state and local tax status of the income received from the Funds. In January 2006, an allocation of interest income by state will be provided which may be of value in reducing a Shareholder’s state and local tax liability, if any.
44 PIMCO Municipal Income Funds II Annual Report | 5.31.05
| PIMCO Municipal Income Funds II Dividend Reinvestment Plan (unaudited) |
|
Pursuant to the Funds’ Dividend Reinvestment Plan (the “Plan”), all Common Shareholders whose shares are registered in their own names will have all dividends, including any capital gain dividends, reinvested automatically in additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the “Plan Agent”), unless the shareholder elects to receive cash. An election to receive cash may be revoked or reinstated at the option of the shareholder. In the case of record shareholders such as banks, brokers or other nominees that hold Common Shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder as representing the total amount registered in such shareholder’s name and held for the account of beneficial owners who are to participate in the Plan. Shareholders whose shares are held in the name of a bank, broker or nominee should contact the bank, broker or nominee for details. All distributions to investors who elect not to participate in the Plan (or whose broker or nominee elects not to participate on the investor’s behalf), will be paid cash by check mailed, in the case of direct shareholder, to the record holder by PFPC Inc., as the Funds’ dividend disbursement agent.
Unless you (or your broker or nominee) elect not to participate in the Plan, the number of Common Shares you will receive will be determined as follows:
| (1) | If Common Shares are trading at or above net asset value on the payment date, the Funds will issue new shares at the greater of (i) the net asset value per Common Share on the payment date or (ii) 95% of the market price per Common Share on the payment date; or |
| |
| (2) | If Common Shares are trading below net asset value (minus estimated brokerage commissions that would be incurred upon the purchase of Common Shares on the open market) on the payment date, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the New York Stock Exchange or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price on the payment date, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Funds. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market on or shortly after the payment date, but in no event later than the ex-dividend date for the next distribution. Interest will not be paid on any uninvested cash payments. |
You may withdraw from the Plan at any time by giving notice to the Plan Agent. If you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. The Plan Agent will also furnish each person who buys Common Shares with written instructions detailing the procedures for electing not to participate in the Plan and to instead receive distributions in cash. Common Shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically reinvested dividends and distributions are taxed in the same manner as cash dividends and distributions.
The Funds and the Plan Agent reserve the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Funds reserve the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained from the Funds’ transfer agent, PFPC Inc., P.O.Box 43027, Providence, RI 02940-3027, telephone number 1-800-331-1710.
5.31.05 | PIMCO Municipal Income Funds II Annual Report 45
PIMCO Municipal Income Funds II Board of Trustees (unaudited)
|
| Name, Age, Position(s) Held with Funds, | |
| Length of Service, Other Trusteeships/ | |
| Directorships Held by Trustee; Number of | |
| Portfolios in Fund Complex/Outside Fund | |
| Complexes Currently Overseen by Trustee | Principal Occupation(s) During Past 5 years: |
|
|
| |
| The address of each trustee is 1345 Avenue of | |
| the Americas, New York, NY 10105 | |
| |
| Robert E. Connor | Corporate Affairs Consultant; Formerly, Senior Vice President, Corporate |
| Age: 70 | Office, Smith Barney Inc. |
| Chairman of the Board of Trustees since: 2004 | |
| Trustee since: 2002 | |
| Term of office: Expected to stand for re-election | |
| at 2006 annual meeting of shareholders. | |
| Trustee/Director of 24 funds in Fund Complex | |
| Trustee/Director of no funds outside of Fund | |
| Complex | |
| |
| Paul Belica | Director, Student Loan Finance Corp., Education Loans, Inc., Goal |
| Age: 83 | Funding I, Goal Funding II, Inc. and Surety Loan Funding, Inc.; Formerly |
| Trustee since: 2002 | senior executive and member of the Board of Smith Barney, Harris Upham |
| Term of office: Expected to stand for re-election | & Co. and CEO of five State of New York Agencies Inc. |
| at 2007 annual meeting of shareholders. | |
| Trustee/Director of 20 funds in Fund Complex | |
| Trustee/Director of no funds outside of Fund | |
| Complex | |
| |
| John J. Dalessandro II | Formerly, President and Director, J.J. Dalessandro II Ltd, registered broker- |
| Age: 67 | dealer and member of the New York Stock Exchange. |
| Trustee since: 2002 | |
| Term of office: Expected to stand for re-election | |
| at 2007 annual meeting of shareholders. | |
| Trustee of 23 funds in Fund Complex | |
| Trustee of no funds outside of Fund complex | |
| |
| David C. Flattum | Managing Director, Chief Operating Officer, General Counsel and |
| Age: 40 | member of Management Board, Allianz Global Investors of America, L.P.; |
| Trustee since: 2004 | Formerly, Partner, Latham & Watkins LLP (1998-2001). |
| Term of office: Expected to stand for election | |
| at 2005 annual meeting of shareholders. | |
| Trustee of 52 funds in Fund Complex | |
| Trustee of no funds outside of Fund Complex | |
| |
| Hans W. Kertess | President, H Kertess & Co., L.P. Formerly, Managing Director, Royal Bank |
| Age: 65 | of Canada Capital Markets. |
| Trustee since: 2002 | |
| Term of office: Expected to stand for re-election | |
| at 2006 annual meeting of shareholders. | |
| Trustee of 23 Funds in Fund Complex; | |
| Trustee of no funds outside of Fund Complex | |
| |
| R. Peter Sullivan III | Formerly, Managing Partner, Bear Wagner Specialists LLC (formerly, |
| Age: 63 | Wagner Stott Mercator LLC), specialist firm on the New York Stock |
| Trustee since: 2002 | Exchange. |
| Term of office: Expected to stand for re-election | |
| at 2005 annual meeting of shareholders. | |
| Trustee of 19 funds in Fund Complex | |
| Trustee of no funds outside of Fund Complex | |
46 PIMCO Municipal Income Funds II Annual Report | 5.31.05
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Trustees and Principal Officers
| Robert E. Connor | Brian S. Shlissel |
| Chairman of the Board of Trustees | President & Chief Executive Officer |
| Paul Belica | Newton B. Schott, Jr. |
| Trustee | Vice President |
| John J. Dalessandro II | Mark V. McCray |
| Trustee | Vice President |
| David C. Flattum | Lawrence G. Altadonna |
| Trustee | Treasurer, Principal Financial & Accounting Officer |
| Hans W. Kertess | Thomas J. Fuccillo |
| Trustee | Secretary |
| R. Peter Sullivan III | Youse Guia |
| Trustee | Chief Compliance Officer |
| | Jennifer A. Patula |
| | Assistant Secretary |
Investment Manager
Allianz Global Investors Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
Sub-Adviser
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, CA 92660
Custodian & Accounting Agent
State Street Bank & Trust Co.
801 Pennsylvania
Kansas City, MO 64105-1307
Transfer Agent, Dividend Paying Agent and Registrar
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Legal Counsel
Ropes & Gray LLP
One International Place
Boston, MA 02210-2624
This report, including the financial information herein, is transmitted to the shareholders of PIMCO Municipal Income Fund II, PIMCO California Municipal Income Fund II and PIMCO New York Municipal Income Fund II for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Funds or any securities mentioned in this report. Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time each Fund may purchase shares of its common stock in the open market.
The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of its fiscal year on Form N-Q. Forms N-Q are available (i) on the Funds’ website at www.allianzinvestors.com (ii) on the Commission’s website at www.sec.gov, and (iii) at the Commission’s Public Reference Room located in Washington, DC, (800) SEC-0330.
On January 24, 2005, each Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which each Funds’ principal executive officer certified that he was not aware, as of that date, of any violation by the Funds of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, each Funds’ principal executive and principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Funds’ disclosure controls and procedures and internal control over financial reporting, as applicable.
Information on the Funds is available at www.allianzinvestors.com or by calling the Funds’ transfer agent 1-800-331-1710.
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics (the "Section 406 Standards for Investment
Companies -- Ethical Standards for Principal Executive and Financial
Officers") that applies to the registrant's Principal Executive
Officer and Principal Financial Officer; the registrant's Principal
Financial Officer also serves as the Principal Accounting Officer. The
registrant undertakes to provide a copy of such code of ethics to any
person upon request, without charge, by calling 1-800-331-1710.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's Board has determined
that Mr. Paul Belica, a member of the Board's Audit Oversight Committee is an
"audit committee financial expert," and that he is "independent," for purposes
of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by
the Registrant's principal accountant (the "Auditor") for the audit of
the Registrant's annual financial statements, or services that are
normally provided by the Auditor in connection with the statutory and
regulatory filings or engagements for the Reporting Periods, were
$48,350 in 2004 and $41,616 in 2005.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods
for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit registrant's
financial statements and are not reported under paragraph (e) of this
Item were $11,800 in 2004 and $10,173 in 2005. These services consist
of accounting consultations, agreed upon procedure reports (inclusive
of annual review of basic maintenance testing associated with the
Preferred Shares), attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax compliance,
tax service and tax planning ("Tax Services") were $4,700 in 2004 and
$8,000 in 2005. These services consisted of review or preparation of
U.S. federal, state, local and excise tax returns.
d) All Other Fees. There were no other fees billed in the Reporting
Periods for products and services provided by the Auditor to the
Registrant.
e) Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of all audit and permissible non-audit services by
the Auditor for the Registrant, as well as the Auditor's engagements
for non-audit services to the when the engagement relates directly to
the operations and financial reporting of the Registrant. The
Registrant's policy is stated below.
PIMCO Municipal Income Funds II (THE "FUNDS")
AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE
INDEPENDENT ACCOUNTANTS
The Funds' Audit Oversight Committee ("Committee") is charged with the oversight
of the Funds' financial reporting policies and practices and their internal
controls. As part of this responsibility, the Committee must pre-approve any
independent accounting firm's engagement to render audit and/or permissible
non-audit services, as required by law. In evaluating a proposed engagement by
the independent accountants, the Committee will assess the effect that the
engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to provided,
the fees to be charged in connection with the services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUNDS
On an annual basis, the Funds' Committee will review and pre-approve the scope
of the audits of the Funds and proposed audit fees and permitted non-audit
(including audit-related) services that may be performed by the Funds'
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy. In addition to the Committee's
pre-approval of services pursuant to this Policy, the engagement of the
independent accounting firm for any permitted non-audit service provided to the
Funds will also require the separate written pre-approval of the President of
the Funds, who will confirm, independently, that the accounting firm's
engagement will not adversely affect the firm's independence. All non-audit
services performed by the independent accounting firm will be disclosed, as
required, in filings with the Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
Semiannual financial statement reviews
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of quarterly review of Basic
Maintenance testing associated with issuance of Preferred Shares and
semiannual report review)
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Funds' independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the following:
Federal, state and local income tax compliance; and, sales and use tax compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $100,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
PROSCRIBED SERVICES
The Funds' independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or financial
statements of the Funds
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
Actuarial services Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the Public Company Accounting Oversight Board determines,
by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND
COMPLEX
The Committee will pre-approve annually any permitted non-audit services to be
provided to Allianz Global Investors Fund Management LLC (Formerly, PA Fund
Management LLC) or any other investment manager to the Funds (but not including
any sub-adviser whose role is primarily portfolio management and is
sub-contracted by the investment manager) (the "Investment Manager") and any
entity
controlling, controlled by, or under common control with the Investment Manager
that provides ongoing services to the Funds (including affiliated sub-advisers
to the Funds), provided, in each case, that the engagement relates directly to
the operations and financial reporting of the Funds (such entities, including
the Investment Manager, shall be referred to herein as the "Accounting
Affiliates"). Individual projects that are not presented to the Committee as
part of the annual pre-approval process, may be pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member who is a disinterested trustee under the
Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $100,000. Any such
pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
Although the Committee will not pre-approve all services provided to the
Investment Manager and its affiliates, the Committee will receive an annual
report from the Funds' independent accounting firm showing the aggregate fees
for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit services to a Fund or
Accounting Affiliates, the pre-approval requirement is waived if:
(1) The aggregate amount of all such permitted non-audit services
provided constitutes no more than (i) with respect to such services
provided to the Fund, five percent (5%) of the total amount of
revenues paid by the Fund to its independent accountant during the
fiscal year in which the services are provided, and (ii) with
respect to such services provided to Accounting Affiliates, five
percent (5%) of the total amount of revenues paid to the Fund's
independent accountant by the Fund and the Accounting Affiliates
during the fiscal year in which the services are provided;
(2) Such services were not recognized by the Fund at the time of the
engagement for such services to be non-audit services; and
(3) Such services are promptly brought to the attention of the
Committee and approved prior to the completion of the audit by the
Committee or by the Committee Chairman (or any other Committee
member who is a disinterested trustee under the Investment Company
Act to whom this Committee Chairman or other delegate shall be
reported to the full Committee at its next regularly scheduled
meeting.
e) 2. No services were approved pursuant to the procedures
contained in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration
S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to the
Adviser, for the 2004 Reporting Period was $4,065,376 and the 2005
Reporting Period was $2,548,181.
h) Auditor Independence. The Registrant's Audit Oversight Committee
has considered whether the provision of non-audit services that were
rendered to the Adviser which were not pre-approved is compatible with
maintaining the Auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
The Fund has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
audit committee of the Fund is comprised of Robert E. Connor, Paul Belica, John
J. Dalessandro II, Hans W. Kertess and R. Peter Sullivan III.
ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of
the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The registrant has delegated the voting of proxies relating to its voting
securities to its sub-adviser, Pacific Investment Management Co. (the
"Sub-Adviser"). The Proxy Voting Policies and Procedures of the Sub-Adviser are
included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not effective at time of filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES
TOTAL NUMBER
OF SHARES PURCHASED MAXIMUM NUMBER OF
TOTAL NUMBER AVERAGE AS PART OF PUBLICLY SHARES THAT MAY YET BE
OF SHARES PRICE PAID ANNOUNCED PLANS OR PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE PROGRAMS OR PROGRAMS
------ --------- --------- -------- -----------
June 2004 N/A N/A N/A N/A
July 2004 N/A N/A N/A N/A
August 2004 N/A N/A N/A N/A
September 2004 N/A 14.28 36,445 N/A
October 2004 N/A 14.31 36,208 N/A
November 2004 N/A 14.47 34,785 N/A
December 2004 N/A N/A N/A N/A
January 2005 N/A N/A N/A N/A
February 2005 N/A 14.81 34,203 N/A
March 2005 N/A 14.82 34,972 N/A
April 2005 N/A 14.69 36,024 N/A
May 2005 N/A 14.80 34,894 N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Trustees since the Fund last provided
disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a-2(c) under the
Investment Company Act of 1940, as amended are effective based on their
evaluation of these controls and procedures as of a date within 90 days
of the filing date of this document.
(b) There were no significant changes in the registrant's internal controls
or in factors that could affect these controls subsequent to the date
of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS
(a)(1) Exhibit 99.CODE ETH - Code of Ethics
(a)(2) Exhibit 99.Cert. - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906Cert. - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.PROXYPOL - Proxy Voting Policies and Procedures
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant)PIMCO Municipal
Income Fund II
-----------------------
By /s/ Brian S. Shlissel
- ------------------------
President and Chief Executive Officer
Date August 9, 2005
- -------------------
By /s/ Lawrence G. Altadonna
- ----------------------------
Treasurer, Principal Financial & Accounting Officer
Date August 9, 2005
- -------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Brian S. Shlissel
- ------------------------
President and Chief Executive Officer
Date August 9, 2005
- -------------------
By /s/ Lawrence G. Altadonna
- ----------------------------
Treasurer, Principal Financial & Accounting Officer
Date August 9, 2005
- -------------------
