The Funds may also invest in Inverse Floaters without transferring a fixed rate municipal bond into a special purpose trust, which are not accounted for as secured borrowings. The Funds may also invest in Inverse Floaters for the purpose of increasing leverage.
The Inverse Floaters 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 typically every 7 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 rates result in lower income for the long-term component and vice versa. The longer-term bonds may be more volatile and less liquid than other municipal bonds of comparable maturity. Investments in Inverse Floaters typically will involve greater risk than in an investment in Fixed Rate Bonds.
The Funds’ restrictions on borrowings do not apply to the secured borrowings deemed to have occurred for accounting purposes. Inverse Floaters held by the Funds are exempt from registration under Rule 144A of the Securities Act of 1933.
In addition to general market risks, the Funds’ investments in Inverse Floaters may involve greater risk and volatility than an investment in a fixed rate bond, and the value of Inverse Floaters may decrease significantly when market interest rates increase. Inverse Floaters have varying degrees of liquidity, and the market for these securities may be volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Although volatile, Inverse Floaters typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Trusts in which Inverse Floaters may be held could be terminated due to market, credit or other events beyond the Funds’ control, which could require the Funds to reduce leverage and dispose of portfolio investments at inopportune times and prices.
| |
PIMCO Municipal Income Funds II | Notes to Financial Statements |
November 30, 2010 (unaudited) | |
| | |
1. Organization and Significant Accounting Policies (continued)
delivered, which may result in a realized gain or loss. When a security is sold on a delayed-delivery basis, the Funds do not participate in future gains and losses with respect to the security.
(i) Custody Credits 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. Cash overdraft charges, if any, are included in custodian and accounting agent fees.
(j) Interest Expense
Interest expense primarily relates to the Funds’ participation in floating rate notes held by third parties in conjunction with Inverse Floater transactions and reverse repurchase agreement transactions. Interest expense on reverse repurchase agreements is recorded as it is incurred.
2. Principal Risks
In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to, among other things, changes in the market (market risk) or failure of the other party to a transaction to perform (counterparty risk). The Funds are also exposed to various risks such as, but not limited to, interest rate and credit risks.
Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by the Funds are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e. yield) movements.
Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When the Funds hold variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the net asset value of the Funds’ shares.
The Funds are exposed to credit risk, which is the risk of losing money if the issuer or guarantor of a fixed income security is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.
The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The potential loss to the Funds could exceed the value of the financial assets recorded in the Funds’ financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist principally of cash due from counterparties and investments. The Funds’ Sub-Adviser, Pacific Investment Management Company LLC (the “Sub-Adviser”), an affiliate of the Investment Manager, seeks to minimize the Funds’ counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.
3. Investment Manager/Sub-Adviser
Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of the Funds’ Board of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, each Fund’s investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.65% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that maybe outstanding.
The Investment Manager has retained the ‘Sub-Adviser to manage each Fund’s investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Funds’ investment decisions. The Investment Manager, and not the Funds, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.
34 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 |
| |
PIMCO Municipal Income Funds II | Notes to Financial Statements |
November 30, 2010 (unaudited) | |
| | |
4. Investments in Securities
Purchases and sales of investments, other than short-term securities, for the six months ended November 30, 2010, were:
| | | | | | | | | | |
| | Municipal II | | California
Municipal II | | New York
Municipal II | |
| | | | | | | | |
Purchases | | $ | 110,437,980 | | $ | 41,587,200 | | $ | 12,595,973 | |
Sales | | | 117,433,265 | | | 41,469,318 | | | 6,486,464 | |
(a) Open reverse repurchase agreements at November 30, 2010 were:
California Municipal II:
| | | | | | | | | | | | | | | | |
Counterparty | | Rate | | Trade Date | | Maturity
Date | | Principal &
Interest | | Principal | |
| | | | | | | | | | | | |
Bank of America | | 0.65% | | 11/12/10 | | 12/13/10 | | $ | 3,282,706 | | $ | 3,281,580 | |
| | | | | | | | | | | | | | | | |
The weighted average daily balance of reverse repurchase agreements outstanding during the six months ended November 30, 2010 for California Municipal II and New York Municipal II was $4,577,935 and $3,912,118 respectively at a weighted average interest rate of 0.61% and 0.68%, respectively. For California Municipal II, at November 30, 2010 the total market value of underlying collateral (please refer to the California Municipal II Schedules of Investments for positions segregated for the benefit of the counterparty as collateral for reverse repurchase agreements) for open reverse repurchase agreements for the benefit of the counterparty was $3,548,850.
(b) Floating rate notes:
The weighted average daily balance of floating rate notes outstanding during the six months ended November 30, 2010 for Municipal II, California Municipal II and New York Municipal II was $85,162,546, $50,624,686 and $9,849,252 respectively at a weighted average interest rate, including fees, of 0.44%, 0.08% and 0.46%, respectively.
5. Income Tax Information
The cost of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at November 30, 2010 was:
| | | | | | | | | | | | | |
| | Cost of
Investments | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net
Unrealized
Appreciation | |
| | | | | | | | | | | | | | |
Municipal II | | | $981,646,055 | | | $37,146,259 | | | $36,135,169 | | | $1,011,090 | |
California Municipal II | | | 393,092,804 | | | 26,020,380 | | | 7,781,271 | | | 18,239,109 | |
New York Municipal II | | | 186,860,121 | | | 7,731,134 | | | 4,161,798 | | | 3,569,336 | |
The difference between book and tax cost is attributable to inverse floater transactions.
6. Auction-Rate Preferred Shares
Municipal II has 2,936 shares of Preferred Shares Series A, 2,936 shares of Preferred Shares Series B, 2,936 shares of Preferred Shares Series C, 2,936 shares of Preferred Shares Series D and 2,936 shares of Preferred Shares Series E outstanding, each with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.
California Municipal II has 1,304 shares of Preferred Shares Series A, 1,304 shares of Preferred Shares Series B, 1,304 shares of Preferred Shares Series C, 1,304 shares of Preferred Shares Series D and 1,304 shares of Preferred Shares Series E outstanding, each with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.
New York Municipal II has 1,580 shares of Preferred Shares Series A and 1,580 shares of Preferred Shares Series B outstanding, each with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.
Dividends are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures. Distributions of net realized capital gains, if any, are paid annually.
| 11.30.10 | PIMCO Municipal Income Funds II Semi-Annual Report 35
|
PIMCO Municipal Income Funds II Notes to Financial Statements |
November 30, 2010 (unaudited) |
| |
6. Auction-Rate Preferred Shares (continued)
For the six months ended November 30, 2010, the annualized dividend rates for each Fund ranged from:
| | | | | | | | | |
| | | High | | Low | | | At November 30, 2010 |
| | | | | | | | | |
Municipal II:
| | | | | | | | | |
Series A | | | 0.472% | | 0.35 | % | | | 0.411% |
Series B | | | 0.472% | | 0.381 | % | | | 0.442% |
Series C | | | 0.472% | | 0.35 | % | | | 0.442% |
Series D | | | 0.472% | | 0.35 | % | | | 0.442% |
Series E | | | 0.472% | | 0.35 | % | | | 0.442% |
| | | | | | | | | |
California Municipal II: | | | | | | | | | |
Series A | | | 0.472% | | 0.35 | % | | | 0.411% |
Series B | | | 0.472% | | 0.381 | % | | | 0.442% |
Series C | | | 0.472% | | 0.35 | % | | | 0.442% |
Series D | | | 0.472% | | 0.35 | % | | | 0.442% |
Series E | | | 0.472% | | 0.35 | % | | | 0.442% |
| | | | | | | | | |
New York Municipal II: | | | | | | | | | |
Series A | | | 0.472% | | 0.35 | % | | | 0.442% |
Series B | | | 0.472% | | 0.35 | % | | | 0.442% |
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 or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation preference plus any accumulated, unpaid dividends.
Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote separately as a class to elect two Trustees and on any matters affecting the rights of the Preferred Shares.
Since mid-February 2008, holders of auction-rate preferred shares (“ARPS”) issued by the Funds have been directly impacted by an unprecedented lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity holders have continued to receive dividends at the defined “maximum rate”, the higher of the 30-day “AA” Composite Commercial Paper Rate multiplied by a minimum of 110% (depending on the credit rating of the ARPS) or the Taxable Equivalent of the Short-Term Municipal Obligation Rate-defined as 90% of the quotient of (A) the per annum rate expressed on an interest equivalent basis equal to the Kenny S&P 30-day High Grade Index divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal) multiplied by a minimum of 110% (depending on the credit rating of the ARPS) (which is a function of short-term interest rates and typically higher than the rate that would have otherwise been set through a successful auction). If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Funds’ common shareholders could be adversely affected.
See Note 7 — “Legal Proceedings” below for a discussion of shareholder demand letter received by certain closed end funds managed by the Investment Manager.
7. Legal Proceedings
In June and September 2004, the Investment Manager and certain of its affiliates (including PEA Capital LLC (“PEA”), Allianz Global Investors Distributors LLC and Allianz Global Investors of America, L.P.) agreed to settle, without admitting or denying the allegations, claims brought by the Securities and Exchange Commission (“SEC”) and the New Jersey Attorney General alleging violations of federal and state securities laws with respect to certain open-end funds for which the Investment Manager serves as investment adviser. The settlements related to an alleged “market timing” arrangement in certain open-end funds formerly sub-advised by PEA. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims. In addition to monetary payments, the settling parties agreed to undertake certain corporate governance, compliance and disclosure reforms related to market timing, and consented to cease and desist orders and censures. Subsequent to these events, PEA deregistered as an investment adviser and dissolved. None of the settlements alleged that any inappropriate activity took place with respect to the Funds.
36 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 |
|
PIMCO Municipal Income Funds II Notes to Financial Statements |
November 30, 2010 (unaudited) |
| |
7. Legal Proceedings (continued)
Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in a number of pending lawsuits concerning “market timing,” which allege the same or similar conduct underlying the regulatory settlements discussed above. The market timing lawsuits have been consolidated in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland (the “MDL Court”). After a number of claims in the lawsuits were dismissed by the MDL Court, the parties entered into a stipulation of settlement, which was publicly filed with the MDL Court in April 2010, resolving all remaining claims, but the settlement remains subject to the approval of the MDL Court.
In addition, in a lawsuit filed in the Northern District of Illinois Eastern Division, plaintiffs challenged certain trades by PIMCO in the June 2005 10 year futures contract. PIMCO’s position is that all such trades were properly designed to secure best execution for its clients. The parties resolved this matter through settlement, which resolves all of the claims against PIMCO. In settling this matter, PIMCO denies any liability. This settlement is purely private in nature and not a regulatory matter.
Beginning in May 2010, several closed-end funds managed by the Investment Manager, including Municipal Income Fund II and certain other funds sub-advised by the Sub-Adviser, each received a demand letter from a law firm on behalf of certain common shareholders. The demand letters allege that the Investment Manager and certain officers and trustees of the funds breached their fiduciary duties in connection with the redemption at par of a portion of the funds’ ARPS and demand that the boards of trustees take certain action to remedy those alleged breaches. After conducting an investigation, in August 2010 the independent trustees of Municipal Income Fund II rejected the demands made in the demand letters.
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.
8. Subsequent Events
On December 1, 2010, the following dividends were declared to common shareholders payable December 29, 2010 to shareholders of record on December 13, 2010:
| |
Municipal II | $0.065 per common share |
California Municipal II | $0.0625 per common share |
New York Municipal II | $0.06625 per common share |
On January 3, 2011, the following dividends were declared to common shareholders payable February 1, 2011 to shareholders of record on January 13, 2011:
| |
Municipal II | $0.065 per common share |
California Municipal II | $0.0625 per common share |
New York Municipal II | $0.06625 per common share |
| 11.30.10 | PIMCO Municipal Income Funds II Semi-Annual Report 37
|
PIMCO Municipal Income Fund II Financial Highlights |
For a common share outstanding throughout each period: |
| |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months
ended
November 30,
2010
(unaudited) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | Year ended May 31, | |
| | | | | |
| | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 10.77 | | | $ | 8.97 | | | $ | 13.86 | | | $ | 15.05 | | | $ | 14.71 | | | $ | 14.81 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.45 | | | | 0.88 | | | | 1.02 | | | | 1.13 | | | | 1.13 | | | | 1.08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps | | | (0.34 | ) | | | 1.73 | | | | (4.94 | ) | | | (1.24 | ) | | | 0.33 | | | | 0.01 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total from investment operations | | | 0.11 | | | | 2.61 | | | | (3.92 | ) | | | (0.11 | ) | | | 1.46 | | | | 1.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends on Preferred Shares from Net Investment Income | | | (0.01 | ) | | | (0.03 | ) | | | (0.19 | ) | | | (0.30 | ) | | | (0.30 | ) | | | (0.23 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations | | | 0.10 | | | | 2.58 | | | | (4.11 | ) | | | (0.41 | ) | | | 1.16 | | | | 0.86 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends to Common Shareholders from Net Investment Income | | | (0.39 | ) | | | (0.78 | ) | | | (0.78 | ) | | | (0.78 | ) | | | (0.82 | ) | | | (0.96 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 10.48 | | | $ | 10.77 | | | $ | 8.97 | | | $ | 13.86 | | | $ | 15.05 | | | $ | 14.71 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Market price, end of period | | $ | 10.59 | | | $ | 11.12 | | | $ | 9.56 | | | $ | 14.14 | | | $ | 15.42 | | | $ | 14.45 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Investment Return (1) | | | (1.34 | )% | | | 25.49 | % | | | (26.46 | )% | | | (3.09 | )% | | | 12.64 | % | | | 2.63 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, applicable to common shareholders, end of period (000s) | | $ | 630,371 | | | $ | 645,589 | | | $ | 534,046 | | | $ | 819,740 | | | $ | 886,815 | | | $ | 862,832 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets, including interest expense (2)(3)(4) | | | 1.31 | %* | | | 1.38 | %(5) | | | 1.73 | %(5) | | | 1.68 | %(5) | | | 1.50 | %(5) | | | 1.30 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets, excluding interest expense (2)(3) | | | 1.19 | %* | | | 1.24 | %(5) | | | 1.35 | %(5) | | | 1.19 | %(5) | | | 1.01 | %(5) | | | 1.05 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of net investment income to average net assets (2) | | | 8.23 | %* | | | 8.77 | %(5) | | | 10.23 | %(5) | | | 7.90 | %(5) | | | 7.45 | %(5) | | | 7.31 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred shares asset coverage per share | | $ | 67,939 | | | $ | 68,974 | | | $ | 61,376 | | | $ | 65,570 | | | $ | 68,889 | | | $ | 67,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio turnover | | | 10 | % | | | 6 | % | | | 42 | % | | | 21 | % | | | 4 | % | | | 20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
* | Annualized. |
(1) | Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the 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 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) | Interest expense primarily relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions. |
(5) | During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders were 0.004%, 0.10%, 0.17%, 0.24% and 0.24% for the years ended May 31, 2010, May 31, 2009, May 31, 2008, May 31, 2007 and May 31, 2006, respectively. |
38 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 | See accompanying Notes to Financial Statements
|
PIMCO California Municipal Income Fund II Financial Highlights |
For a common share outstanding throughout each period: |
| |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months
ended
November 30,
2010
(unaudited) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | Year ended May 31, | |
| | | | | |
| | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 8.11 | | | $ | 7.48 | | | $ | 13.34 | | | $ | 14.89 | | | $ | 14.58 | | | $ | 14.61 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.37 | | | | 0.76 | | | | 0.85 | | | | 1.06 | | | | 1.08 | | | | 1.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps | | | (0.34 | ) | | | 0.67 | | | | (5.69 | ) | | | (1.49 | ) | | | 0.34 | | | | 0.05 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total from investment operations | | | 0.03 | | | | 1.43 | | | | (4.84 | ) | | | (0.43 | ) | | | 1.42 | | | | 1.11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends on Preferred Shares from Net Investment Income | | | (0.01 | ) | | | (0.03 | ) | | | (0.18 | ) | | | (0.28 | ) | | | (0.27 | ) | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations | | | 0.02 | | | | 1.40 | | | | (5.02 | ) | | | (0.71 | ) | | | 1.15 | | | | 0.90 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends to Common Shareholders from Net Investment Income | | | (0.38 | ) | | | (0.77 | ) | | | (0.80 | ) | | | (0.84 | ) | | | (0.84 | ) | | | (0.93 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Return of capital | | | — | | | | — | | | | (0.04 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 7.75 | | | $ | 8.11 | | | $ | 7.48 | | | $ | 13.34 | | | $ | 14.89 | | | $ | 14.58 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Market price, end of period | | $ | 8.81 | | | $ | 9.33 | | | $ | 8.78 | | | $ | 14.25 | | | $ | 15.96 | | | $ | 14.62 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Investment Return (1) | | | (1.56 | )% | | | 16.44 | % | | | (32.26 | )% | | | (5.17 | )% | | | 15.35 | % | | | 5.50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets applicable to common shareholders, end of period (000s) | | $ | 242,162 | | | $ | 252,816 | | | $ | 231,415 | | | $ | 409,769 | | | $ | 455,284 | | | $ | 443,379 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets including interest expense (2)(3)(4) | | | 1.35 | %* | | | 1.56 | %(5) | | | 3.15 | %(5) | | | 3.23 | %(5) | | | 2.89 | %(5) | | | 2.02 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets,excluding interest expense (2)(3) | | | 1.31 | %* | | | 1.33 | %(5) | | | 1.43 | %(5) | | | 1.18 | %(5) | | | 1.01 | %(5) | | | 1.06 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of net investment income to average net assets (2) | | | 8.83 | %* | | | 9.78 | %(5) | | | 9.31 | %(5) | | | 7.65 | %(5) | | | 7.28 | %(5) | | | 7.24 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred shares asset coverage per share | | $ | 62,140 | | | $ | 63,773 | | | $ | 60,490 | | | $ | 64,390 | | | $ | 68,765 | | | $ | 67,620 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio turnover | | | 9 | % | | | 9 | % | | | 62 | % | | | 6 | % | | | 3 | % | | | 12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
* | Annualized. |
(1) | Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the 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 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) | Interest expense primarily relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions. |
(5) | During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders were 0.004%, 0.10%, 0.17%, 0.24% and 0.24% for the years ended May 31, 2010, May 31, 2009, May 31, 2008, May 31, 2007 and May 31, 2006, respectively. |
See accompanying Notes to Financial Statements | 11.30.10 | PIMCO Municipal Income Funds II Semi-Annual Report 39
|
PIMCO New York Municipal Income Fund II Financial Highlights |
For a common share outstanding throughout each period: |
| |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months
ended
November 30,
2010
(unaudited) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | Year ended May 31, | |
| | | | | |
| | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 10.90 | | | $ | 9.56 | | | $ | 13.67 | | | $ | 14.79 | | | $ | 14.66 | | | $ | 14.62 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.45 | | | | 0.98 | | | | 1.00 | | | | 1.07 | | | | 1.10 | | | | 1.07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps | | | (0.43 | ) | | | 1.19 | | | | (4.13 | ) | | | (1.11 | ) | | | 0.11 | | | | 0.11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total from investment operations | | | 0.02 | | | | 2.17 | | | | (3.13 | ) | | | (0.04 | ) | | | 1.21 | | | | 1.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends on Preferred Shares from Net Investment Income | | | (0.01 | ) | | | (0.03 | ) | | | (0.19 | ) | | | (0.29 | ) | | | (0.28 | ) | | | (0.23 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations | | | 0.01 | | | | 2.14 | | | | (3.32 | ) | | | (0.33 | ) | | | 0.93 | | | | 0.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends to Common Shareholders from Net Investment Income | | | (0.40 | ) | | | (0.80 | ) | | | (0.79 | ) | | | (0.79 | ) | | | (0.80 | ) | | | (0.91 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 10.51 | | | $ | 10.90 | | | $ | 9.56 | | | $ | 13.67 | | | $ | 14.79 | | | $ | 14.66 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Market price, end of period | | $ | 11.38 | | | $ | 11.42 | | | $ | 10.26 | | | $ | 14.42 | | | $ | 15.49 | | | $ | 14.14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Investment Return (1) | | | 3.21 | % | | | 19.92 | % | | | (22.95 | )% | | | (1.46 | )% | | | 15.51 | % | | | 1.65 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
RATIOS/SUPPLEMENTAL DATA: | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets applicable to common shareholders, end of period (000s) | | $ | 113,295 | | | $ | 117,161 | | | $ | 102,126 | | | $ | 145,100 | | | $ | 156,218 | | | $ | 154,088 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets including interest expense (2)(3)(4) | | | 1.48 | %* | | | 1.53 | %(5) | | | 1.88 | %(5) | | | 2.07 | %(5) | | | 2.13 | %(5) | | | 1.89 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets, excluding interest expense (2)(3) | | | 1.39 | %* | | | 1.43 | %(5) | | | 1.51 | %(5) | | | 1.25 | %(5) | | | 1.14 | %(5) | | | 1.13 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of net investment income to average net assets (2) | | | 8.19 | %* | | | 9.51 | %(5) | | | 9.63 | %(5) | | | 7.69 | %(5) | | | 7.33 | %(5) | | | 7.29 | %(5) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred shares asset coverage per share | | $ | 60,851 | | | $ | 62,073 | | | $ | 57,316 | | | $ | 65,294 | | | $ | 68,386 | | | $ | 67,785 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio turnover | | | 3 | % | | | 5 | % | | | 33 | % | | | 9 | % | | | 3 | % | | | 26 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
* | Annualized. |
(1) | Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the 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 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) | Interest expense primarily relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions. |
(5) | During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders were 0.004%, 0.10%, 0.17%, 0.24% and 0.24% for the years ended May 31, 2010, May 31, 2009, May 31, 2008, May 31, 2007 and May 31, 2006, respectively. |
40 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 | See accompanying Notes to Financial Statements
| |
PIMCO Municipal Income Funds II | Annual Shareholder Meeting Results/Changes
to the Board of Trustees/Proxy Voting Policies
& Procedures (unaudited) |
| |
Annual Shareholder Meeting Results:
The Funds held their joint annual meeting of shareholders on December 14, 2010. Common/Preferred shareholders voted as indicated below:
| | | | | | | |
| | Affirmative | | Withheld
Authority | |
| | | | | | |
| | | | | | | |
Municipal II | | | | | | | |
Re-election of Paul Belica – Class II to serve until 2013 | | | 53,889,723 | | | 1,827,839 | |
Election of James A. Jacobson* – Class II to serve until 2013 | | | 11,618 | | | 179 | |
Election of Alan Rappaport– Class I to serve until 2012 | | | 54,271,846 | | | 1,445,716 | |
| | | | | | | |
California Municipal II | | | | | | | |
Re-election of Paul Belica – Class II to serve until 2013 | | | 25,677,044 | | | 1,390,672 | |
Election of James A. Jacobson* – Class II to serve until 2013 | | | 4,129 | | | 21 | |
Election of Alan Rappaport– Class I to serve until 2012 | | | 25,785,464 | | | 1,282,252 | |
| | | | | | | |
New York Municipal II | | | | | | | |
Re-election of Paul Belica – Class II to serve until 2013 | | | 9,286,133 | | | 377,955 | |
Election of James A. Jacobson* – Class II to serve until 2013 | | | — | | | — | |
Election of Alan Rappaport– Class I to serve until 2012 | | | 9,369,378 | | | 294,710 | |
The other members of the Board of Trustees at the time of the meetings, namely Messrs. Hans W. Kertess*, John C. Maney†, and William B. Ogden IV, continued to serve as Trustees of the Funds.
| | |
| | |
* | Preferred Shares Trustee |
† | Interested Trustee |
|
| |
|
Changes to the Board of Trustees: |
Effective June 22, 2010, the Funds’ Board of Trustees appointed Alan Rappaport as a Class I Trustee to serve until 2012.
R. Peter Sullivan, III retired from the Funds’ Board of Trustees effective July 31, 2010.
Effective December 15, 2010, the Funds’ Board of Trustees appointed Bradford K. Gallagher as a Trustee.
|
| |
|
Proxy Voting Policies & Procedures: |
A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the most recent twelve month period ended June 30 is available (i) without charge, upon request, by calling the Funds’ shareholder servicing agent at (800) 254-5197; (ii) on the Funds’ website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at www.sec.gov
| 11.30.10 | PIMCO Municipal Income Funds II Semi-Annual Report 41
| |
PIMCO Municipal Income Funds II | Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements (unaudited) |
| | |
The Investment Company Act of 1940, as amended, requires that both the full Board of Trustees (the “Trustees”) and a majority of the non-interested Trustees (the “Independent Trustees”), voting separately, approve the Funds’ Management Agreements with the Investment Manager (the “Advisory Agreements”) and Portfolio Management Agreements (the “Sub-Advisory Agreements”, and together with the Advisory Agreements, the “Agreements”) between the Investment Manager and the Sub-Adviser. The Trustees met in person on June 22-23, 2010 (the “contract review meeting”) for the specific purpose of considering whether to approve the continuation of the Advisory Agreements and the Sub-Advisory Agreements. The Independent Trustees were assisted in their evaluation of the Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Fund management during the contract review meeting.
Based on their evaluation of factors that they deemed to be material, including those factors described below, the Board of Trustees, including a majority of the Independent Trustees, concluded that the continuation of the Funds’ Advisory Agreements and the Sub-Advisory Agreements, should be approved for a one-year period commencing July 1, 2010.
In connection with their deliberations regarding the continuation of the Agreements, the Trustees, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. As described below, the Trustees considered the nature, quality, and extent of the various investment management, administrative and other services performed by the Investment Manager or the Sub-Adviser under the applicable Agreement.
In connection with their contract review meeting, the Trustees received and relied upon materials provided by the Investment Manager which included, among other items: (i) information provided by Lipper Inc. (“Lipper”) on the total return investment performance (based on net assets) of the Funds for various time periods and the investment performance of a group of funds with substantially similar investment classifications/objectives as the Funds identified by Lipper and the performance of applicable benchmark indices, (ii) information provided by Lipper on the Funds’ management fees and other expenses and the management fees and other expenses of comparable funds identified by Lipper, (iii) information regarding the investment performance and management fees of comparable portfolios of other clients of the Sub-Advisers, (iv) the profitability to the Investment Manager and the Sub-Adviser from their relationship with the Funds for the one year period ended March 31, 2010, (v) descriptions of various functions performed by the Investment Manager and the Sub-Adviser for the Funds, such as portfolio management, compliance monitoring and portfolio trading practices, and (vi) information regarding the overall organization of the Investment Manager and the Sub-Adviser, including information regarding senior management, portfolio managers and other personnel providing investment management, administrative and other services to the Funds.
The Trustees’ conclusions as to the continuation of the Agreements were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors.
As part of their review, the Trustees examined the Investment Manager’s and the Sub-Adviser’s abilities to provide high quality investment management and other services to the Funds. The Trustees considered the investment philosophy and research and decision-making processes of the Sub-Adviser; the experience of key advisory personnel of the Sub-Adviser responsible for portfolio management of the Funds; the ability of the Investment Manager and the Sub-Adviser to attract and retain capable personnel; the capability and integrity of the senior management and staff of the Investment Manager and the Sub-Adviser; and the level of skill required to manage the Funds. In addition, the Trustees reviewed the quality of the Investment Manager’s and the Sub-Adviser’s services with respect to regulatory compliance and compliance with the investment policies of the Funds; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Funds; and conditions that might affect the Investment Manager’s or the Sub-Adviser’s ability to provide high quality services to the Funds in the future under the Agreements, including each organization’s respective business reputation, financial condition and operational stability. Based on the foregoing, the Trustees concluded that the Sub-Adviser’s investment process, research capabilities and philosophy were well suited to each of the Funds given their respective investment objectives and policies, and that the Investment Manager and the Sub-Adviser would be able to continue to meet any reasonably foreseeable obligations under the Agreements.
Based on information provided by Lipper, the Trustees also reviewed each Fund’s total return investment performance as well as the performance of comparable funds identified by Lipper. In the course of their deliberations, the Trustees took into account information provided by the Investment Manager in connection with the contract review meeting, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding each Fund’s performance.
42 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 |
| |
PIMCO Municipal Income Funds II | Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements (unaudited) (continued) |
| | |
In assessing the reasonableness of each Fund’s fees under the Agreements, the Trustees considered, among other information, each Fund’s management fee and the total expense ratio as a percentage of average net assets attributable to common and preferred shares and the management fee and total expense ratios of comparable funds identified by Lipper.
For each of the Funds, the Trustees specifically took note of how each Fund compared to its Lipper peers as to performance, management fee expenses and total expenses. The Trustees noted that the Investment Manager had provided a memorandum containing comparative information on the performance and expenses information of the Funds compared to their Lipper peer categories. The Trustees noted that while the Funds are not charged a separate administration fee, it was not clear whether the peer funds in the Lipper categories were charged such a fee by their investment managers.
Municipal II
The Trustees noted that the expense group for the Fund provided by Lipper is small, consisting of a total of nine leveraged closed-end funds, not including peer Funds advised by the Investment Manager (the “Affiliated Funds”). The Trustees also noted that average net assets attributable to common shares of the funds in the peer group ranged from $262 million to $591 million, and that all of the funds are smaller in asset size than the Fund. The Trustees also noted that the Fund was ranked seven out of nine funds in the expense peer group for actual management fees and nine out of nine for actual total expenses (with funds ranked first having the lowest fees/expenses and ranked ninth having the highest fees/expenses in the peer group).
With respect to performance, the Trustees also noted that the Fund outperformed its benchmark and had first quintile performance for the one-year period ended March 31, 2010 against a peer group of fifty nine funds. The Trustees also noted that the Fund had fifth quintile performance for the three-year period against a peer group of fifty nine funds and fifth quintile performance for the five-year period ended March 31, 2010 against a peer group of fifty eight funds.
California Municipal II
The Trustees noted that the expense group for the Fund provided by Lipper is small, consisting of a total of seven leveraged closed-end funds, not including Affiliated Funds. The Trustees also noted that average net assets attributable to common shares of the funds in the peer group ranged from $107.7 million to $282.6 million, and that all of the funds are smaller in asset size than the Fund. The Trustees also noted that the Fund was ranked six out of seven funds in the expense peer group for actual management fees and seven out of seven funds in the expense peer group for actual total expenses (with funds ranked first having the lowest fees/expenses and ranked seventh having the highest fees/expenses in the peer group).
With respect to performance, the Trustees also noted that the Fund outperformed its benchmark and had first quintile performance for the one-year period ended March 31, 2010 against a peer group of twenty one funds. The Trustees also noted that the Fund had fifth quintile performance for the three-year period and five-year period ended March 31, 2010 against a peer group of twenty one funds.
New York Municipal II
The Trustees noted that the expense group for the Fund provided by Lipper is small, consisting of a total of seven leveraged closed-end funds, not including Affiliated Funds. The Trustees also noted that average net assets attributable to common shares of the funds in the peer group ranged from $45.8 million to $190.5 million, and that one of the funds is larger in asset size than the Fund. The Trustees also noted that the Fund was ranked six out of seven funds in the expense peer group for actual management fees and for actual total expenses (with funds ranked first having the lowest fees/expenses and ranked seventh having the highest fees/expenses in the peer group).
With respect to performance, the Trustees also noted that the Fund outperformed its benchmark and had first quintile performance for the one-year period ended March 31, 2010 against a peer group of seventeen funds. The Trustees also noted that the Fund had fifth quintile performance for the three-year period and five-year period ended March 31, 2010 against a peer group of seventeen funds.
At the request of the Trustees, the Investment Manager and Sub-Adviser agreed to continue to provide performance information related to the Fund, on a monthly basis.
After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the Agreements, that they were satisfied with the Investment Manager’s and the Sub-Adviser’s responses and efforts to continue to improve the Funds’ investment performance. The Trustees agreed to reassess the services provided by the Investment Manager and Sub-Adviser under the Agreements in light of the Fund’s ongoing performance at each quarterly Board meeting.
| 11.30.10 | PIMCO Municipal Income Funds II Semi-Annual Report 43
| |
PIMCO Municipal Income Funds II | Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements (unaudited) (continued) |
| | |
The Trustees also considered the management fees charged by Sub-Adviser to other clients, including accounts with investment strategies similar to those of the Funds. The Trustees noted that the management fees paid by the Funds are generally higher than the fees paid by the open-end funds offered for comparison but were advised that there are additional portfolio management challenges in managing the Funds, such as the use of leverage and meeting a regular dividend.
The Trustees also took into account that the Funds have preferred shares outstanding, which increases the amount of fees received by the Investment Manager and the Sub-Adviser under the Agreements (because the fees are calculated based on the Fund’s net assets, including assets attributable to preferred shares outstanding.) In this regard, the Trustees took into account that the Investment Manager and the Sub-Adviser have a financial incentive for the Funds to continue to have preferred shares outstanding, which may create a conflict of interest between the Investment Manager and the Sub-Adviser, on one hand, and the Funds’ common shareholders, on the other. In this regard, the Trustees considered information provided by the Investment Manager and the Sub-Adviser indicating that each Fund’s use of leverage through preferred shares continues to be appropriate and in the interests of the respective Fund’s common shareholders.
Based on a profitability analysis provided by the Investment Manager, the Trustees also considered the profitability of the Investment Manager and the Sub-Adviser from their relationship with each Fund and determined that such profitability was not excessive.
The Trustees also took into account that, as closed-end investment companies, the Fund’s do not currently intend to raise additional assets, so the assets of the Funds will grow (if at all) only through the investment performance of each Fund. Therefore, the Trustees did not consider potential economies of scale as a principal factor in assessing the fee rates payable under the Agreements.
Additionally, the Trustees considered so-called “fall-out benefits” to the Investment Manager and the Sub-Adviser, such as reputational value derived from serving as Investment Manager and Sub-Adviser to the Funds.
After reviewing these and other factors described herein, the Trustees concluded with respect to each Fund, within the context of their overall conclusions regarding the Agreements, that the fees payable under the Agreements represent reasonable compensation in light of the nature and quality of the services being provided by the Investment Manager and Sub-Adviser to the Funds.
44 PIMCO Municipal Income Funds II Semi-Annual Report | 11.30.10 |
| |
Trustees | Fund Officers |
Hans W. Kertess | Brian S. Shlissel |
Chairman of the Board of Trustees | President & Chief Executive Officer |
Paul Belica | Lawrence G. Altadonna |
Bradford K. Gallagher | Treasurer, Principal Financial & Accounting Officer |
James A. Jacobson | Thomas J. Fuccillo |
John C. Maney | Vice President, Secretary & Chief Legal Officer |
William B. Ogden, IV | Scott Whisten |
Alan Rappaport | Assistant Treasurer |
| Richard J. Cochran |
| Assistant Treasurer |
| Orhan Dzemaili |
| Assistant Treasurer |
| Youse E. Guia |
| Chief Compliance Officer |
| Kathleen A. Chapman |
| Assistant Secretary |
| Lagan Srivastava |
| Assistant Secretary |
|
Investment Manager |
Allianz Global Investors Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105 |
Sub-Adviser |
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, CA 92660 |
Custodian & Accounting Agent |
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110 |
Transfer Agent, Dividend Paying Agent and Registrar |
BNY Mellon
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
Prudential Tower
800 Boylston Street
Boston, MA 02199 |
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.
The financial information included herein is taken from the records of the Funds without examination by an independent registered public accounting firm, who did not express an opinion herein.
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Funds may purchase their common shares in the open market.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of their fiscal year on Form N-Q. The Funds’ Form N-Q are available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Funds’ website at www.allianzinvestors.com/closedendfunds.
Information on the Funds is available at www.allianzinvestors.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (800) 254-5197.
Receive this report electronically and eliminate paper mailings. To enroll, go to
www.allianzinvestors.com/edelivery.
AZ611SA_113010
ITEM 2. CODE OF ETHICS
| |
(a) | Not required in this filing |
| |
|
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not required in this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not required in this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
Not required in this filing.
ITEM 6. SCHEDULE OF INVESTMENTS
| |
(a) | Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form. |
| |
(b) | Not applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not required in this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not required in this filing.
ITEM 9.
Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Companies
None
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.
A-1
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant’s President and Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-3(c))), as amended are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal controls (over financial reporting as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) Exhibit 99.302 Cert. - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(a) (2) Not applicable
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
A-2
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 & Chief Executive Officer |
| |
Date | February 1, 2011 |
|
|
| |
By | /s/ Lawrence G. Altadonna |
|
|
Treasurer, Principal Financial & Accounting Officer |
| |
Date | February 1, 2011 |
|
|
| |
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 |
|
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President & Chief Executive Officer |
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Date | February 1, 2011 |
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By | /s/ Lawrence G. Altadonna |
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Treasurer, Principal Financial & Accounting Officer |
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Date | February 1, 2011 |
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