UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number |
811-21311 |
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PIMCO High Income Fund |
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(Exact name of registrant as specified in charter) |
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1345 Avenue of the Americas, New York, New York |
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10105 |
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(Address of principal executive offices) |
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(Zip code) |
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Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105 |
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(Name and address of agent for service) |
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Registrants telephone number, including area code: |
212-739-3371 |
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Date of fiscal year end: |
March 31, 2007 |
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Date of reporting period: |
September 30, 2006 |
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Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (OMB) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. REPORT TO SHAREHOLDERS
PIMCO High Income Fund
Semi-Annual
Report
September 30, 2006
Contents |
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Letter to Shareholders |
1 |
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Performance & Statistics |
2 |
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Schedule of Investments |
3-12 |
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Statement of Assets and Liabilities |
13 |
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Statement of Operations |
14 |
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Statement of Changes in Net Assets |
15 |
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Notes to Financial Statements |
16-24 |
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Financial Highlights |
25 |
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Matters Relating to the Trustees Consideration of the Investment Management & Portfolio Management Agreements |
26-28 |
PIMCO High Income Fund Letter to Shareholders
October 11, 2006
Dear Shareholder:
We are pleased to provide you with the semi-annual report for PIMCO High Income Fund (the Fund) for the fiscal six-month period ended September 30, 2006.
For performance and specific information on the Fund please refer to the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds shareholder servicing agent at (800) 331-1710. In addition, a wide range of information and resources is available on our Web site, www.allianzinvestors.com/closedendfunds.
Together with Allianz Global Investors Fund Management LLC, the Funds investment manager, and Pacific Investment Management Company LLC, the Funds sub-adviser, we thank you for investing with us.
We remain dedicated to serving your financial needs.
Sincerely,
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Robert E. Connor |
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Brian S. Shlissel |
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Chairman |
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President & Chief Executive Officer |
9.30.06 | PIMCO High Income Fund Semi-Annual Report 1
PIMCO High Income Fund Performance & Statistics
September 30, 2006 (unaudited)
* For the six-month period, the Funds net asset value (NAV) and market price returns were 3.93% and 11.03%, respectively.
* During the reporting period, the Merrill Lynch High Yield Master II Index returned 3.88%, narrowly outpacing the 3.73% return for the broad bond market, as measured by the Lehman Brothers Aggregate Bond Index.
* Security selection in the consumer cyclical sector was a positive for Fund performance during the reporting period, as auto-related issues in particular significantly outperforming the overall high yield bond market.
* A focus on the telecom sector detracted from Fund performance during the first half of the reporting period. In the second half, however, a large weighting in wireline companies within this sector contributed positively to performance.
* Within the energy sector, an emphasis on pipeline issuers was a positive contributor to Fund performance during the second half of the reporting period, although the energy sector in general suffered during the first three months as the effects of an unseasonably warm winter carried over into the spring.
* The decision avoiding the building products sector entirely was positive for Fund performance throughout the reporting period as this sector underperformed, largely due to growing inventories and declining demand in the housing market.
* The Funds focus on B-rated high yield issues produced mixed results, contributing strongly to Fund performance in the first half of the reporting period, but detracting somewhat in the second half as these issues underperformed both BB- and CCC-rated issues.
Total Return(1): |
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Market Price |
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Net Asset Value (NAV) |
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Six months |
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11.03% |
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3.93% |
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1 year |
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18.20% |
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9.01% |
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3 years |
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16.66% |
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11.65% |
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Commencement of Operations (4/30/03) to 9/30/06 |
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13.27% |
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12.18% |
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Common Share Market Price/NAV Performance:
Commencement of
Operations (4/30/03) to 9/30/06
Market Price/NAV:
Market Price |
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$15.75 |
NAV |
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$14.68 |
Premium to NAV |
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7.29% |
Market Price Yield(2) |
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9.29% |
(1) Past performance is no guarantee of future results. Total return is determined by subtracting the initial investment from the value at the end of the period and dividing the remainder by the initial investment and expressing the result as a percentage. The calculation assumes that all income dividends and capital gain distributions have been reinvested at prices obtained under the Fund's dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual total return.
An investment in the Fund involves risk, including the loss of principal. Investment return, price, yield and net asset value will fluctuate with changes in market conditions. This data is provided for information only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Net asset value is total assets applicable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.
(2) Market Price Yield is determined by dividing the annualized current monthly per share dividend to common shareholders by the market price per common share at September 30, 2006.
2 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited)
Principal |
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Credit
Rating |
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Value |
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CORPORATE BONDS & NOTES 86.7% |
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Aerospace 0.2% |
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$ |
5,600 |
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Armor Holdings, Inc., 8.25%, 8/15/13 |
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B1/B+ |
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$ |
5,824,000 |
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Airlines 1.2% |
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8,760 |
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American
Airlines, Inc., pass thru certificates, |
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Baa3/BB+ |
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9,083,025 |
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Continental Airlines, Inc., pass thru certificates, |
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14,677 |
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6.92%, 4/2/13, 97-5A 9 (a) (b) (g) |
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NR/NR |
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14,934,503 |
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4,439 |
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7.373%, 6/15/17, Ser. 01-1 |
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Ba1/BB+ |
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4,397,070 |
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1,943 |
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8.307%, 10/2/19, Ser. 00-2 |
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Ba2/BB- |
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1,886,476 |
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3,547 |
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Northwest
Airlines, Inc., pass thru certificates, |
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Caa1/CCC |
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3,398,651 |
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333 |
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United
Air Lines, Inc., pass thru certificates, |
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Aaa/BBB |
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333,860 |
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4,158 |
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U.S. Airway Group, Inc., 9.625%, 9/1/24 (b) (f) (g) |
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NR/NR |
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14,970 |
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34,048,555 |
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Automotive 4.2% |
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10,450 |
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Arvin Capital I, 9.50%, 2/1/27 |
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B1/B |
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10,659,000 |
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18,725 |
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ArvinMeritor, Inc., 8.75%, 3/1/12 |
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Ba3/BB- |
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18,022,812 |
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5,150 |
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Cooper-Standard Automotive, Inc., 7.00%, 12/15/12 |
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B3/B- |
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4,467,625 |
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15,000 |
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Ford Motor Co., 7.45%, 7/16/31 |
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Ba3/B |
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11,662,500 |
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General Motors Corp., |
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8,000 |
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7.20%, 1/15/11 |
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Caa1/B- |
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7,410,000 |
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7,200 |
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8.25%, 7/15/23 |
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Caa1/B- |
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6,273,000 |
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Goodyear Tire & Rubber Co., |
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12,300 |
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9.00%, 7/1/15 |
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B3/B- |
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12,546,000 |
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7,000 |
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11.00%, 3/1/11 |
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B3/B- |
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7,752,500 |
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Tenneco Automotive, Inc., |
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14,000 |
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8.625%, 11/15/14 |
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B3/B |
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13,895,000 |
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14,025 |
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10.25%, 7/15/13, Ser. B |
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Aa3/B |
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15,287,250 |
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8,245 |
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TRW Automotive, Inc., 9.375%, 2/15/13 |
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Ba3/BB- |
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8,822,150 |
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116,797,837 |
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Building/Construction 0.2% |
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5,000 |
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Ahern Rentals, Inc., 9.25%, 8/15/13 |
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B-/B- |
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5,150,000 |
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Chemicals 3.3% |
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ARCO Chemical Co., |
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3,808 |
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9.80%, 2/1/20 |
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Ba3/B+ |
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4,322,080 |
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2,000 |
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10.25%, 11/1/10 |
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Ba3/B+ |
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2,180,000 |
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15,000 |
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Equistar Chemicals L.P., 10.125%, 9/1/08 |
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B1/BB- |
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15,956,250 |
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21,925 |
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Ineos Group Holdings PLC, 8.50%, 2/15/16 (d) |
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B2/B- |
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20,993,187 |
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Lyondell Chemical Co., |
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4,150 |
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8.00%, 9/15/14 |
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B+/B+ |
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4,222,625 |
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3,825 |
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8.25%, 9/15/16 |
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B+/B+ |
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3,901,500 |
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15,300 |
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Nalco Co., 8.875%, 11/15/13 |
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Caa1/B- |
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16,026,750 |
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13,660 |
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PQ Corp., 7.50%, 2/15/13 |
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B1/B- |
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13,045,300 |
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980 |
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Rhodia S.A., 8.875%, 6/1/11 |
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Caa2/B- |
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1,016,750 |
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10,500 |
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Rockwood Specialties Group, Inc., 7.50%, 11/15/14 |
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B3/B- |
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10,395,000 |
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92,059,442 |
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Commercial Products 0.7% |
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17,800 |
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Hertz Corp., 8.875%, 1/1/14 (d) |
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B1/B |
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18,734,500 |
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9.30.06 | PIMCO High Income Fund Semi-Annual Report 3
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
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Credit
Rating |
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Value |
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Computer Services 1.3% |
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SunGard Data Systems, Inc., |
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$ |
17,100 |
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9.125%, 8/15/13 |
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Ba1/B- |
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$ |
17,784,000 |
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17,000 |
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10.25%, 8/15/15 |
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Aaa/B- |
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17,595,000 |
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35,379,000 |
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Computer Software 0.4% |
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9,500 |
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UGS Corp., 10.00%, 6/1/12 |
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B3/B- |
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10,307,500 |
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Consumer Products 0.3% |
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Buhrmann US, Inc., |
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500 |
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7.875%, 3/1/15 |
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B2/B |
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483,750 |
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6,875 |
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8.25%, 7/1/14 |
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B2/B |
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6,823,437 |
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7,307,187 |
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Consumer Services 0.3% |
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9,200 |
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Education Management Corp., 10.25%, 6/1/16 (d) |
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Caa1/CCC+ |
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9,453,000 |
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Containers & Packaging 2.1% |
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Crown Americas LLC, |
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2,475 |
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7.625%, 11/15/13 |
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B/B |
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2,518,312 |
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5,650 |
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7.75%, 11/15/15 |
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B/B |
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5,748,875 |
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Jefferson Smurfit Corp., |
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11,200 |
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7.50%, 6/1/13 |
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B2/CCC+ |
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10,388,000 |
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10,263 |
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8.25%, 10/1/12 |
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B2/CCC+ |
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9,878,138 |
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Smurfit-Stone Container, |
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14,000 |
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8.375%, 7/1/12 |
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B2/CCC+ |
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13,510,000 |
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15,338 |
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9.75%, 2/1/11 |
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B2/CCC+ |
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15,874,830 |
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57,918,155 |
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Diversified Manufacturing 0.0% |
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1,000 |
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Quiksilver, Inc., 6.875%, 4/15/15 |
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B3/BB- |
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952,500 |
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Electronics 1.0% |
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12,750 |
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Sanmina-SCI Corp., 8.125%, 3/1/16 |
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NR/B |
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12,558,750 |
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10,600 |
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Sensata Technologies BV, 8.00%, 5/1/14 (d) |
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NR/B- |
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10,361,500 |
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6,400 |
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Solectron Global Finance Ltd., 8.00%, 3/15/16 |
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NR/B- |
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6,368,000 |
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29,288,250 |
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Energy 0.9% |
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2,000 |
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NRG Energy, Inc., 7.375%, 2/1/16 |
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B1/B- |
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1,992,500 |
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Reliant Energy, Inc., |
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7,025 |
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9.25%, 7/15/10 |
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B2/B |
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7,323,563 |
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15,525 |
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9.50%, 7/15/13 |
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B2/B |
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16,184,812 |
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742 |
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Reliant Energy Mid-Atlantic Power Holdings LLC, |
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9.237%, 7/2/17, Ser. B |
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Caa1/B |
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821,950 |
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26,322,825 |
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Financial Services 17.0% |
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30,870 |
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AES Ironwood LLC, 8.857%, 11/30/25 |
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B2/B+ |
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34,266,157 |
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8,075 |
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AES Red Oak LLC, 8.54%, 11/30/19, Ser. A |
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B2/B+ |
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8,640,260 |
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25,091 |
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BCP Crystal U.S. Holding Corp., 9.625%, 6/15/14 |
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B3/B |
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27,349,190 |
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17,700 |
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Bluewater Finance Ltd., 10.25%, 2/15/12 |
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B2/B- |
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18,009,750 |
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7,700 |
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Chukchansi Economic Development Authority, |
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8.00%, 11/15/13 (d) |
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B2/BB- |
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7,940,625 |
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|
275 |
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Cirsa Finance Luxembourg S.A., 8.75%, 5/15/14 |
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B1/B+ |
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371,870 |
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$ |
9,977 |
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Consolidated Communications Holdings, 9.75%, 4/1/12 |
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B3/B |
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10,575,620 |
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4 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
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Credit
Rating |
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Value |
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Financial Services (continued) |
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Ford Motor Credit Co., |
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$ |
5,000 |
|
7.00%, 10/1/13 |
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B1/B |
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$ |
4,645,415 |
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35,000 |
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7.375%, 2/1/11 |
|
B1/B |
|
33,624,395 |
|
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55,225 |
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7.875%, 6/15/10 |
|
B1/B |
|
53,824,605 |
|
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15,000 |
|
8.625%, 11/1/10 |
|
B1/B |
|
14,955,480 |
|
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General Motors Acceptance Corp., |
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|
|||
10,000 |
|
7.25%, 3/2/11 |
|
Ba1/BB |
|
10,066,540 |
|
|||
24,800 |
|
7.75%, 1/19/10 |
|
Ba1/BB |
|
25,429,449 |
|
|||
11,125 |
|
8.00%, 11/1/31 |
|
Ba1/BB |
|
11,664,251 |
|
|||
|
|
JET Equipment Trust (d) (f), |
|
|
|
|
|
|||
211 |
|
7.63%, 8/15/12, Ser. 95-B (g) |
|
NR/NR |
|
172,954 |
|
|||
326 |
|
10.00%, 6/15/12, Ser. A11 |
|
NR/NR |
|
316,524 |
|
|||
36,270 |
|
JSG Funding PLC, 9.625%, 10/1/12 |
|
B3/B- |
|
38,446,200 |
|
|||
18,445 |
|
KRATON Polymers LLC, 8.125%, 1/15/14 |
|
B3/B- |
|
17,937,762 |
|
|||
120,600 |
|
Targeted Return Index Securities Trust, |
|
|
|
|
|
|||
|
|
7.548%, 5/1/16, VRN (d) (h) (k) |
|
B1/B+ |
|
120,857,602 |
|
|||
19,203 |
|
Universal City Development Partners Ltd., 11.75%, 4/1/10 |
|
B2/B- |
|
20,787,248 |
|
|||
8,030 |
|
Universal City Florida Holding Co., 8.375%, 5/1/10 |
|
B3/B- |
|
8,100,262 |
|
|||
|
5,800 |
|
UPC Holding BV, 8.625%, 1/15/14 |
|
B3/CCC+ |
|
7,383,883 |
|
||
|
|
|
|
|
|
475,366,042 |
|
|||
Food 0.9% |
|
|
|
|
|
|||||
$ |
1 |
|
Dole Foods Co., Inc., 8.875%, 3/15/11 |
|
B3/B |
|
783 |
|
||
24,925 |
|
Ingles Markets, Inc., 8.875%, 12/1/11 |
|
B3/B |
|
26,108,937 |
|
|||
|
|
|
|
|
|
26,109,720 |
|
|||
Healthcare & Hospitals 4.0% |
|
|
|
|
|
|||||
8,000 |
|
DaVita, Inc., 7.25%, 3/15/15 |
|
B3/B |
|
7,900,000 |
|
|||
|
|
HCA, Inc., |
|
|
|
|
|
|||
13,200 |
|
6.95%, 5/1/12 |
|
Ba2/BB+ |
|
11,599,500 |
|
|||
7,475 |
|
7.50%, 12/15/23 |
|
Ba2/BB+ |
|
5,833,497 |
|
|||
2,130 |
|
7.58%, 9/15/25 |
|
Ba2/BB+ |
|
1,652,352 |
|
|||
4,600 |
|
7.69%, 6/15/25 |
|
Ba2/BB+ |
|
3,613,903 |
|
|||
5,000 |
|
7.875%, 2/1/11 |
|
Ba2/BB+ |
|
4,806,250 |
|
|||
8,000 |
|
8.75%, 9/1/10 |
|
Ba2/BB+ |
|
8,100,000 |
|
|||
9,000 |
|
9.00%, 12/15/14 |
|
Ba2/BB+ |
|
8,460,225 |
|
|||
6,700 |
|
National Mentor Holdings, Inc., 11.25%, 7/1/14 (d) |
|
Caa1/CCC+ |
|
6,901,000 |
|
|||
19,990 |
|
Rotech Healthcare, Inc., 9.50%, 4/1/12 |
|
Ba2/CC |
|
13,793,100 |
|
|||
|
|
Tenet Healthcare Corp., |
|
|
|
|
|
|||
17,000 |
|
7.375%, 2/1/13 |
|
Caa1/CCC+ |
|
15,406,250 |
|
|||
22,925 |
|
9.875%, 7/1/14 |
|
Caa1/CCC+ |
|
22,953,656 |
|
|||
|
|
|
|
|
|
111,019,733 |
|
|||
Hotels/Gaming 1.4% |
|
|
|
|
|
|||||
2,000 |
|
Gaylord Entertainment Co., 8.00%, 11/15/13 |
|
B3/B- |
|
2,045,000 |
|
|||
5,000 |
|
Herbst Gaming, Inc., 8.125%, 6/1/12 |
|
B3/B- |
|
5,131,250 |
|
|||
19,279 |
|
Mandalay Resort Group, 9.375%, 2/15/10 |
|
Ba3/B+ |
|
20,700,826 |
|
|||
8,948 |
|
Premier Entertainment LLC, 10.75%, 2/1/12 |
|
Caa1/CCC |
|
9,149,330 |
|
|||
3,500 |
|
Station Casinos, Inc., 6.875%, 3/1/16 |
|
Aaa/B+ |
|
3,298,750 |
|
|||
|
|
|
|
|
|
40,325,156 |
|
|||
Machinery 0.1% |
|
|
|
|
|
|||||
2,000 |
|
Chart Industries, Inc., 9.125%, 10/15/15 (d) |
|
B3/B- |
|
2,080,000 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
9.30.06 | PIMCO High Income Fund Semi-Annual Report 5
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
Credit
Rating |
|
Value |
|
||
|
|
|
|
|
|
|||||
Manufacturing 0.6% |
|
|
|
|
|
|||||
$ |
9,545 |
|
Dresser, Inc., 10.125%, 4/15/11 |
|
B2/CCC+ |
|
$ |
10,034,181 |
|
|
6,403 |
|
Invensys PLC, 9.875%, 3/15/11 (d) |
|
B3/B- |
|
6,947,255 |
|
|||
|
|
|
|
|
|
16,981,436 |
|
|||
Medical Products 0.8% |
|
|
|
|
|
|||||
22,785 |
|
VWR International, Inc., 8.00%, 4/15/14 |
|
Caa1/B- |
|
23,098,294 |
|
|||
Miscellaneous 3.2% |
|
|
|
|
|
|||||
89,570 |
|
Dow Jones CDX U.S. High Yield, |
|
|
|
|
|
|||
|
|
8.375%, 12/29/11, Ser. 7-T1 (b) (d) (e) (g) (h) |
|
NR/NR |
|
89,398,344 |
|
|||
Multi-Media 5.3% |
|
|
|
|
|
|||||
3,000 |
|
Cablemas S.A. de C.V., 9.375%, 11/15/15 (d) |
|
B1/BB- |
|
3,135,000 |
|
|||
5,600 |
|
Cablevision Systems Corp., 8.00%, 4/15/12, Ser. B |
|
B3/B+ |
|
5,698,000 |
|
|||
39,300 |
|
CCO Holdings LLC, 8.75%, 11/15/13 |
|
B3/CCC- |
|
39,742,125 |
|
|||
10,000 |
|
Charter Communications Holdings I LLC, 11.00%, 10/1/15 |
|
Caa2/CCC- |
|
9,150,000 |
|
|||
4,605 |
|
Charter Communications Holdings II LLC, 10.25%, 9/15/10 |
|
Caa1/CCC- |
|
4,720,125 |
|
|||
|
|
Charter Communications Operating LLC (d), |
|
|
|
|
|
|||
13,000 |
|
8.00%, 4/30/12 |
|
B2/B- |
|
13,162,500 |
|
|||
14,325 |
|
8.375%, 4/30/14 |
|
B2/B- |
|
14,629,406 |
|
|||
|
|
CSC Holdings, Inc., |
|
|
|
|
|
|||
6,300 |
|
7.625%, 7/15/18 |
|
B2/B+ |
|
6,481,125 |
|
|||
1,485 |
|
7.875%, 2/15/18 |
|
B2/B+ |
|
1,548,113 |
|
|||
5,265 |
|
8.125%, 7/15/09, Ser. B |
|
B2/B+ |
|
5,475,600 |
|
|||
4,000 |
|
DirecTV Holdings LLC, 8.375%, 3/15/13 |
|
Ba2/BB- |
|
4,165,000 |
|
|||
4,750 |
|
Iesy Repository GmbH, 10.375%, 2/15/15 (d) |
|
Caa2/CCC+ |
|
4,393,750 |
|
|||
|
6,370 |
|
Lighthouse International Co. S.A., 8.00%, 4/30/14 (d) |
|
Aa2/B |
|
8,744,990 |
|
||
$ |
12,000 |
|
Rogers Cable, Inc., 8.75%, 5/1/32 |
|
Ba2/BB+ |
|
14,220,000 |
|
||
|
3,735 |
|
Telenet Communications NV, 9.00%, 12/15/13 (d) |
|
B2/B- |
|
5,275,410 |
|
||
|
|
Young Broadcasting, Inc., |
|
|
|
|
|
|||
$ |
7,300 |
|
8.75%, 1/15/14 |
|
Caa1/CCC- |
|
6,241,500 |
|
||
1,350 |
|
10.00%, 3/1/11 |
|
Caa1/CCC- |
|
1,267,313 |
|
|||
|
|
|
|
|
|
148,049,957 |
|
|||
Oil & Gas 8.1% |
|
|
|
|
|
|||||
18,000 |
|
Dynegy Holdings, Inc., 8.375%, 5/1/16 |
|
B-/B- |
|
18,405,000 |
|
|||
|
|
Dynergy-Roseton Danskammer, Inc., pass thru certificates, |
|
|
|
|
|
|||
5,050 |
|
7.27%, 11/8/10, Ser. A |
|
B3/B |
|
5,128,906 |
|
|||
25,500 |
|
7.67%, 11/8/16, Ser. B |
|
B3/B |
|
26,025,938 |
|
|||
|
|
El Paso Corp., |
|
|
|
|
|
|||
29,150 |
|
7.80%, 8/1/31 |
|
B2/B |
|
30,024,500 |
|
|||
27,850 |
|
8.05%, 10/15/30 |
|
B2/B |
|
29,103,250 |
|
|||
19,615 |
|
El Paso Production Holding Co., 7.75%, 6/1/13 |
|
B1/B+ |
|
20,154,413 |
|
|||
14,325 |
|
Ferrellgas L.P., 8.75%, 6/15/12 |
|
B2/B- |
|
14,969,625 |
|
|||
|
|
Hanover Compressor Co., |
|
|
|
|
|
|||
7,585 |
|
8.625%, 12/15/10 |
|
B3/B |
|
7,926,325 |
|
|||
1,550 |
|
9.00%, 6/1/14 |
|
B3/B |
|
1,650,750 |
|
|||
12,028 |
|
Hanover Equipment Trust, 8.50%, 9/1/08, Ser. A |
|
B2/B+ |
|
12,238,490 |
|
|||
4,000 |
|
Pogo Producing Co., 7.875%, 5/1/13 (d) |
|
Ba2/B+ |
|
4,095,000 |
|
|||
14,375 |
|
SemGroup L.P., 8.75%, 11/15/15 (d) |
|
B1/NR |
|
14,572,656 |
|
|||
3,000 |
|
Sonat, Inc., 7.00%, 2/1/18 |
|
B2/B |
|
2,925,000 |
|
|||
37,726 |
|
Williams Cos., Inc., 7.875%, 9/1/21 |
|
Ba2/BB- |
|
39,612,300 |
|
|||
|
|
|
|
|
|
226,832,153 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
6 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
Credit
Rating |
|
Value |
|
||
|
|
|
|
|
|
|
|
|
||
Paper/Paper Products 3.9% |
|
|
|
|
|
|||||
|
|
Abitibi-Consolidated, Inc., |
|
|
|
|
|
|||
$ |
6,500 |
|
8.375%, 4/1/15 |
|
B1/B+ |
|
$ |
5,947,500 |
|
|
8,525 |
|
8.55%, 8/1/10 |
|
B1/B+ |
|
8,503,688 |
|
|||
14,159 |
|
8.85%, 8/1/30 |
|
B1/B+ |
|
11,964,355 |
|
|||
16,250 |
|
Bowater Canada Finance, 7.95%, 11/15/11 |
|
B1/B+ |
|
15,600,000 |
|
|||
2,200 |
|
Bowater, Inc., 9.375%, 12/15/21 |
|
B1/B+ |
|
2,167,000 |
|
|||
9,500 |
|
Cascades, Inc., 7.25%, 2/15/13 |
|
Ba3/BB- |
|
9,310,000 |
|
|||
|
|
Georgia-Pacific Corp., |
|
|
|
|
|
|||
4,550 |
|
7.75%, 11/15/29 |
|
B2/B |
|
4,390,750 |
|
|||
27,775 |
|
8.00%, 1/15/24 |
|
B2/B |
|
27,497,250 |
|
|||
13,750 |
|
8.875%, 5/15/31 |
|
B2/B |
|
14,368,750 |
|
|||
|
|
Verso Paper Holdings LLC (d), |
|
|
|
|
|
|||
5,700 |
|
9.125%, 8/1/14 |
|
Aaa/B+ |
|
5,764,125 |
|
|||
2,300 |
|
11.375%, 8/1/16 |
|
Aaa/B- |
|
2,294,250 |
|
|||
|
|
|
|
|
|
107,807,668 |
|
|||
Printing/Publishing 2.4% |
|
|
|
|
|
|||||
17,631 |
|
Dex Media West LLC, 9.875%, 8/15/13, Ser. B |
|
B2/B |
|
19,129,635 |
|
|||
1,000 |
|
Hollinger, Inc., 11.875%, 3/1/11 (d) |
|
B3e/NR |
|
915,000 |
|
|||
7,000 |
|
Nielsen Finance LLC, 10.00%, 8/1/14 (d) |
|
Ba2/CCC+ |
|
7,271,250 |
|
|||
10,477 |
|
Primedia, Inc., 8.875%, 5/15/11 |
|
B2/B |
|
10,293,653 |
|
|||
25,835 |
|
RH Donnelley Corp., 8.875%, 1/15/16 |
|
B3/B |
|
26,028,762 |
|
|||
2,000 |
|
RH Donnelley, Inc., 10.875%, 12/15/12 |
|
B2/B |
|
2,210,000 |
|
|||
|
|
|
|
|
|
65,848,300 |
|
|||
Real Estate 1.6% |
|
|
|
|
|
|||||
10,000 |
|
B.F. Saul REIT, 7.50%, 3/1/14 |
|
B2/BB- |
|
10,200,000 |
|
|||
12,400 |
|
Bon-Ton Stores, Inc., 10.25%, 3/15/14 |
|
B-/B- |
|
12,121,000 |
|
|||
8,000 |
|
Delhaize America, Inc., 9.00%, 4/15/31 |
|
Ba1/BB+ |
|
9,411,112 |
|
|||
3,900 |
|
Grupo Gigante S.A. de C.V., 8.75%, 4/13/16 (d) |
|
NR/BB |
|
3,880,500 |
|
|||
9,550 |
|
NPC International, Inc., 9.50%, 5/1/14 (d) |
|
Caa1/B- |
|
9,454,500 |
|
|||
|
|
|
|
|
|
45,067,112 |
|
|||
Telecommunications 14.9% |
|
|
|
|
|
|||||
14,075 |
|
American Cellular Corp., 10.00%, 8/1/11, Ser. B |
|
B3/CCC |
|
14,813,938 |
|
|||
11,555 |
|
Centennial Communications Corp., 8.125%, 2/1/14 |
|
B3/CCC |
|
11,439,450 |
|
|||
31,800 |
|
Cincinnati Bell, Inc., 8.375%, 1/15/14 |
|
B3/B- |
|
32,277,000 |
|
|||
12,000 |
|
Citizens Communications Co., 9.00%, 8/15/31 |
|
Ba3/BB+ |
|
12,930,000 |
|
|||
|
|
Hawaiian Telcom Communications, Inc., Ser. B, |
|
|
|
|
|
|||
12,225 |
|
9.75%, 5/1/13 (k) |
|
B3/CCC+ |
|
12,622,313 |
|
|||
7,000 |
|
12.50%, 5/1/15 |
|
Caa1/CCC+ |
|
7,385,000 |
|
|||
19,775 |
|
Insight Midwest L.P., 10.50%, 11/1/10 |
|
B2/B |
|
20,566,000 |
|
|||
|
|
Intelsat Bermuda Ltd. (d), |
|
|
|
|
|
|||
20,000 |
|
9.25%, 6/15/16 |
|
B2/B+ |
|
21,125,000 |
|
|||
18,000 |
|
11.25%, 6/15/16 |
|
Caa1/B |
|
19,215,000 |
|
|||
|
|
Intelsat Subsidiary Holding Co., Ltd., |
|
|
|
|
|
|||
3,050 |
|
8.25%, 1/15/13 |
|
B2/B+ |
|
3,103,375 |
|
|||
18,250 |
|
8.625%, 1/15/15 |
|
B2/B+ |
|
18,751,875 |
|
|||
8,600 |
|
Nordic Telephone Co. Holdings ApS, 8.875%, 5/1/16 (d) |
|
B2/B |
|
9,083,750 |
|
|||
11,000 |
|
Nortel Networks Ltd., 10.125%, 7/15/13 (d) |
|
B1/B- |
|
11,660,000 |
|
|||
14,625 |
|
PanAmSat Corp., 6.875%, 1/15/28 |
|
Ba2/BB |
|
12,943,125 |
|
|||
|
|
Qwest Capital Funding, Inc., |
|
|
|
|
|
|||
14,200 |
|
7.25%, 2/15/11 |
|
B3/B |
|
14,271,000 |
|
|||
46,500 |
|
7.90%, 8/15/10 |
|
B3/B |
|
48,011,250 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
9.30.06 | PIMCO High Income Fund Semi-Annual Report 7
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
Credit
Rating |
|
Value |
|
||
|
|
|
|
|
|
|
|
|
||
Telecommunications (continued) |
|
|
|
|
|
|||||
|
|
Qwest Communications International, Inc., |
|
|
|
|
|
|||
$ |
15,275 |
|
7.50%, 2/15/14 |
|
B2/B |
|
$ |
15,389,563 |
|
|
23,750 |
|
7.50%, 2/15/14, Ser. B |
|
B2/B |
|
23,928,125 |
|
|||
|
|
Qwest Corp., |
|
|
|
|
|
|||
1,250 |
|
7.50%, 6/15/23 |
|
Aaa/BB |
|
1,243,750 |
|
|||
10,450 |
|
8.875%, 3/15/12 |
|
B3/BB |
|
11,455,812 |
|
|||
3,000 |
|
8.875%, 6/1/31 |
|
Aaa/BB |
|
3,142,500 |
|
|||
18,020 |
|
Rural Cellular Corp., 9.875%, 2/1/10 |
|
NR/CCC |
|
18,875,950 |
|
|||
9,400 |
|
Suncom Wireless, Inc., 8.50%, 6/1/13 |
|
Caa2/CCC- |
|
8,765,500 |
|
|||
12,400 |
|
Superior Essex Communications LLC, 9.00%, 4/15/12 |
|
B3/B |
|
12,648,000 |
|
|||
24,975 |
|
Time Warner Telecom Holdings, Inc., 9.25%, 2/15/14 |
|
B3/CCC+ |
|
26,411,062 |
|
|||
13,000 |
|
Wind Acquisition Finance S.A., 10.75%, 12/1/15 (d) |
|
B2/B- |
|
14,413,750 |
|
|||
9,000 |
|
Windstream Corp., 8.625%, 8/1/16 (d) |
|
Ba3/BB- |
|
9,675,000 |
|
|||
|
|
|
|
|
|
416,147,088 |
|
|||
Tobacco 0.7% |
|
|
|
|
|
|||||
18,000 |
|
Reynolds American, Inc., 7.75%, 6/1/18 (d) |
|
Caa1/BB |
|
18,884,106 |
|
|||
Transportation 0.3% |
|
|
|
|
|
|||||
|
|
Grupo Transportacion Ferroviaria Mexicana S.A. de C.V., |
|
|
|
|
|
|||
2,400 |
|
9.375%, 5/1/12 |
|
NR/B- |
|
2,556,000 |
|
|||
5,000 |
|
12.50%, 6/15/12 |
|
B3/B- |
|
5,525,000 |
|
|||
|
|
|
|
|
|
8,081,000 |
|
|||
Utilities 4.5% |
|
|
|
|
|
|||||
16,850 |
|
AES Corp., 8.75%, 5/15/13 (d) |
|
Ba3/BB- |
|
18,155,875 |
|
|||
2,000 |
|
Empresa Energetica de Sergipe and Sociedade Anonima de Eletrificaao da Paraiba, 10.50%, 7/19/13 (d) |
|
NR/B+ |
|
2,071,430 |
|
|||
3,220 |
|
Homer City Funding LLC, 8.137%, 10/1/19 |
|
Ba2/BB |
|
3,421,250 |
|
|||
19,450 |
|
Legrand Holding S.A., 8.50%, 2/15/25 |
|
Baa3/BB+ |
|
22,124,375 |
|
|||
|
|
Midwest Generation LLC, pass thru certificates, |
|
|
|
|
|
|||
16,761 |
|
8.30%, 7/2/09, Ser. A |
|
B1/BB- |
|
17,106,333 |
|
|||
24,877 |
|
8.56%, 1/2/16, Ser. B |
|
B1/BB- |
|
26,447,404 |
|
|||
1,500 |
|
8.75%, 5/1/34 |
|
Ba3/B+ |
|
1,608,750 |
|
|||
|
|
PSE&G Energy Holdings LLC, |
|
|
|
|
|
|||
21,500 |
|
8.50%, 6/15/11 |
|
Ba3/BB- |
|
23,005,000 |
|
|||
2,025 |
|
10.00%, 10/1/09 |
|
Ba3/BB- |
|
2,222,437 |
|
|||
3,147 |
|
Sithe Independence Funding Corp., 9.00%, 12/30/13, Ser. A |
|
Ba2/B |
|
3,394,546 |
|
|||
6,942 |
|
South Point Energy Center LLC, 8.40%, 5/30/12 (d) |
|
NR/D |
|
6,772,544 |
|
|||
|
|
|
|
|
|
126,329,944 |
|
|||
Waste Disposal 0.9% |
|
|
|
|
|
|||||
|
|
Allied Waste North America, Inc., |
|
|
|
|
|
|||
13,000 |
|
7.25%, 3/15/15 |
|
B2/BB- |
|
12,967,500 |
|
|||
11,823 |
|
9.25%, 9/1/12, Ser. B |
|
B2/BB- |
|
12,665,389 |
|
|||
|
|
|
|
|
|
25,632,889 |
|
|||
Total Corporate Bonds & Notes (cost-$2,373,851,240) |
|
|
|
2,422,601,693 |
|
|||||
|
|
|
|
|
|
|||||
SENIOR LOANS (a) (b) (c) 3.1% |
|
|
|
|
|
|||||
|
|
|
|
|
|
|||||
Building/Construction 0.2% |
|
|
|
|
|
|||||
£ |
3,000 |
|
Grupo Ferrovial S.A., 5.00%, 4/7/11, Term CL (e) (g) |
|
|
|
5,573,724 |
|
||
Chemicals 0.1% |
|
|
|
|
|
|||||
$ |
2,000 |
|
Ineos Group Ltd., 7.339%, 10/7/12, Term A |
|
|
|
2,011,876 |
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
8 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
|
|
Value |
|
||
|
|
|
|
|
|
|
|
|
||
Containers & Packaging 0.3% |
|
|
|
|
|
|||||
|
|
JSG Packaging, |
|
|
|
|
|
|||
|
431 |
|
5.562%, 1/12/13, Term B |
|
|
|
$ |
549,658 |
|
|
|
324 |
|
5.65%, 1/12/13, Term B |
|
|
|
413,382 |
|
||
|
1,049 |
|
5.741%, 11/29/13, Term B (g) |
|
|
|
1,338,191 |
|
||
|
287 |
|
5.754%, 1/12/13, Term B |
|
|
|
366,439 |
|
||
|
559 |
|
5.835%, 1/12/13, Term B (g) |
|
|
|
712,887 |
|
||
|
431 |
|
6.062%, 1/12/14, Term C |
|
|
|
549,658 |
|
||
|
287 |
|
6.09%, 1/12/14, Term C |
|
|
|
366,439 |
|
||
|
324 |
|
6.15%, 1/12/14, Term C |
|
|
|
413,381 |
|
||
|
1,049 |
|
6.241%, 11/29/14, Term C (g) |
|
|
|
1,341,931 |
|
||
|
559 |
|
6.335%, 1/12/14, Term C (g) |
|
|
|
714,878 |
|
||
$ |
750 |
|
7.882%, 11/29/13, Term B (g) |
|
|
|
755,052 |
|
||
750 |
|
8.382%, 11/29/14, Term C (g) |
|
|
|
755,052 |
|
|||
|
|
|
|
|
|
8,276,948 |
|
|||
Financial Services 0.1% |
|
|
|
|
|
|||||
|
1,200 |
|
UPC Holding BV, 7.75%, 1/15/14 |
|
|
|
1,463,096 |
|
||
Healthcare & Hospitals 0.3% |
|
|
|
|
|
|||||
$ |
9,476 |
|
HealthSouth Corp., 8.58%, 2/2/13 |
|
|
|
9,522,314 |
|
||
Oil & Gas 0.7% |
|
|
|
|
|
|||||
20,000 |
|
Ferrellgas L.P., 8.87%, 8/1/09 (g) |
|
|
|
20,882,827 |
|
|||
Recreation 0.2% |
|
|
|
|
|
|||||
|
|
Amadeus Global Travel, |
|
|
|
|
|
|||
|
2,699 |
|
5.628%, 4/8/12, Term A |
|
|
|
3,417,948 |
|
||
$ |
1,250 |
|
8.117%, 4/8/13, Term B |
|
|
|
1,259,801 |
|
||
1,250 |
|
8.617%, 4/8/14, Term C |
|
|
|
1,264,631 |
|
|||
|
|
|
|
|
|
5,942,380 |
|
|||
Telecommunications 1.0% |
|
|
|
|
|
|||||
|
|
Nordic Telephone, |
|
|
|
|
|
|||
|
5,000 |
|
8.25%, 5/1/16 |
|
|
|
6,872,117 |
|
||
|
2,300 |
|
8.25%, 5/1/16 (d) |
|
|
|
3,161,174 |
|
||
|
|
Nordic Telephone Co. Holdings ApS, |
|
|
|
|
|
|||
|
3,200 |
|
5.536%, 11/30/14, Term B |
|
|
|
4,092,460 |
|
||
|
3,200 |
|
6.036%, 11/30/14, Term C |
|
|
|
4,109,859 |
|
||
$ |
2,000 |
|
NTL Investment Holdings, Inc., 7.305%, 1/6/13, Term B (e) |
|
|
|
2,009,062 |
|
||
|
|
Weather Investments SARL (e), |
|
|
|
|
|
|||
|
3,000 |
|
5.505%, 6/17/12, Term A |
|
|
|
3,796,448 |
|
||
|
1,500 |
|
5.634%, 6/17/13, Term B |
|
|
|
1,904,875 |
|
||
|
1,500 |
|
6.134%, 6/17/14, Term C |
|
|
|
1,914,375 |
|
||
|
|
|
|
|
|
27,860,370 |
|
|||
Wholesale 0.2% |
|
|
|
|
|
|||||
|
|
Roundys, Inc., Term B |
|
|
|
|
|
|||
$ |
2,462 |
|
8.39%, 10/27/11 |
|
|
|
2,486,098 |
|
||
2,500 |
|
8.44%, 10/27/11 |
|
|
|
2,523,957 |
|
|||
|
|
|
|
|
|
5,010,055 |
|
|||
Total Senior Loans (cost-$84,659,115) |
|
|
|
86,543,590 |
|
|||||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
9.30.06 | PIMCO High Income Fund Semi-Annual Report 9
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
Credit
Rating |
|
Value |
|
||||
MUNICIPAL BONDS 0.6% |
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
California 0.6% |
|
|
|
|
|
|||||||
|
|
Los Angeles Community Redevelopement Agency Rev., Ser. H, |
|
|
|
|
|
|||||
$ |
200 |
|
8.25%, 9/1/07 |
|
NR/NR |
|
$ |
199,306 |
|
|||
725 |
|
9.00%, 9/1/12 |
|
NR/NR |
|
748,911 |
|
|||||
1,160 |
|
9.75%, 9/1/17 |
|
NR/NR |
|
1,239,854 |
|
|||||
1,375 |
|
9.75%, 9/1/22 |
|
NR/NR |
|
1,467,675 |
|
|||||
2,170 |
|
9.75%, 9/1/27 |
|
NR/NR |
|
2,305,885 |
|
|||||
3,480 |
|
9.75%, 9/1/32 |
|
NR/NR |
|
3,691,271 |
|
|||||
|
|
San Diego Redevelopement Agency., Tax Allocation, |
|
|
|
|
|
|||||
1,785 |
|
6.59%, 11/1/13 |
|
Baa3/NR |
|
1,764,098 |
|
|||||
1,435 |
|
7.49%, 11/1/18 |
|
Baa3/NR |
|
1,476,816 |
|
|||||
1,885 |
|
7.74%, 11/1/21 |
|
Baa3/NR |
|
1,923,793 |
|
|||||
Total Municipal Bonds (cost-$14,699,584) |
|
|
|
14,817,609 |
|
|||||||
|
|
|
|
|
|
|||||||
PREFERRED STOCK 0.9% |
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Shares |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|||||
Financial Services 0.9% |
|
|
|
|
|
|||||||
24,700 |
|
Fresenius Medical Care Capital Trust II, 7.875%, UNIT |
|
B1/B+ |
|
25,194,000 |
|
|||||
Telecommunications 0.0% |
|
|
|
|
|
|||||||
155,565 |
|
Superior Essex Holding Corp., 9.50%, Ser. A |
|
NR/NR |
|
124,452 |
|
|||||
Total Preferred Stock (cost-$26,157,273) |
|
|
|
25,318,452 |
|
|||||||
|
|
|
|
|
|
|
|
|||||
SHORT-TERM INVESTMENTS 8.9% |
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
Principal |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|||||
Sovereign Debt Obligations (e) 4.6% |
|
|
|
|
|
|||||||
Germany 4.6% |
|
|
|
|
|
|||||||
|
103,000 |
|
Bundesschatzanweisungen, 2.50%, 3/23/07 (cost-$130,467,421) |
|
Aaa/AAA |
|
129,905,423 |
|
||||
|
|
|
|
|
|
|
|
|
||||
Commercial Paper 1.8% |
|
|
|
|
|
|||||||
Financial Services 1.8% |
|
|
|
|
|
|||||||
$ |
28,300 |
|
Danske Corp., 5.27%, 12/27/06 |
|
P-1/A-1+ |
|
27,934,081 |
|
||||
22,000 |
|
UBS Finance LLC, 5.245%, 1/8/07 |
|
P-1/A-1+ |
|
21,677,700 |
|
|||||
Total Commercial Paper (cost-$49,622,254) |
|
|
|
49,611,781 |
|
|||||||
|
|
|
|
|
|
|||||||
U.S. Treasury Bills (i) 0.9% |
|
|
|
|
|
|||||||
26,350 |
|
4.615%-4.87%, 11/30/06-12/14/06 (cost-$26,095,272) |
|
|
|
26,061,431 |
|
|||||
|
|
|
|
|
|
|||||||
Corporate Bonds & Notes 0.4% |
|
|
|
|
|
|||||||
Financial Services 0.4% |
|
|
|
|
|
|||||||
10,000 |
|
Bombardier Capital, Inc., 7.09%, 3/30/07, Ser. AI (a) (b) |
|
NR/NR |
|
10,054,000 |
|
|||||
Telecommunications 0.0% |
|
|
|
|
|
|||||||
851 |
|
Calpoint Receivable Structured Trust, 7.44%, 12/10/06 (d) |
|
B3/NR |
|
857,206 |
|
|||||
Total Corporate Bonds & Notes (cost-$10,864,641) |
|
|
|
10,911,206 |
|
|||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
10 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Principal |
|
|
|
|
|
|
Value |
|
|||
Repurchase Agreements 1.2% |
|
|
|
|
|
||||||
$ |
28,000 |
|
Lehman Brothers Holdings, |
|
|
|
$ |
28,000,000 |
|
||
4,803 |
|
State Street Bank & Trust Co., |
|
|
|
4,803,000 |
|
||||
Total Repurchase Agreements (cost-$32,803,000) |
|
|
|
32,803,000 |
|
||||||
Total Short-Term Investments (cost-$249,852,588) |
|
|
|
249,292,841 |
|
||||||
|
|
|
|
|
|
||||||
OPTIONS PURCHASED (j) 0.0% |
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Contracts/ |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
||||||
Put Options 0.0% |
|
|
|
|
|
||||||
|
|
Eurodollar Futures, Chicago Mercantile Exchange, |
|
|
|
|
|
||||
1,346 |
|
strike price $90.25, expires 9/17/07 |
|
|
|
8,412 |
|
||||
1,483 |
|
strike price $91.25, expires 6/18/07 |
|
|
|
9,269 |
|
||||
1,544 |
|
strike price $91.75, expires 3/19/07 |
|
|
|
9,650 |
|
||||
55 |
|
strike price $93, expires 12/18/06 |
|
|
|
344 |
|
||||
408 |
|
strike price $93.25, expires 12/18/06 |
|
|
|
2,550 |
|
||||
Total Options Purchased (cost-$45,942) |
|
|
|
30,225 |
|
||||||
|
|
|
|
|
|
||||||
Total Investments before options written |
|
|
|
2,798,604,410 |
|
||||||
|
|
|
|
|
|
||||||
OPTIONS WRITTEN (j) (0.2)% |
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Call Options (0.1)% |
|
|
|
|
|
||||||
|
|
Swap Option 3 month LIBOR, Over the Counter, |
|
|
|
|
|
||||
21,400,000 |
|
strike rate 4.60%, expires 1/2/07 |
|
|
|
(10,422 |
) |
||||
|
|
U.S. Treasury Bond Futures, Chicago Board of Trade, |
|
|
|
|
|
||||
2,088 |
|
strike price $115, expires 2/23/07 |
|
|
|
(1,729,125 |
) |
||||
|
|
U.S. Treasury Notes 10 yr. Futures, Chicago Board of Trade, |
|
|
|
|
|
||||
1,752 |
|
strike price $111, expires 2/23/07 |
|
|
|
(492,750 |
) |
||||
|
|
|
|
|
|
(2,232,297 |
) |
||||
|
|
|
|
|
|
|
|
||||
Put Options (0.1)% |
|
|
|
|
|
||||||
|
|
Swap Option 3 month LIBOR, Over the Counter, |
|
|
|
|
|
||||
21,400,000 |
|
strike rate 5.90%, expires 1/2/07 |
|
|
|
(6,420 |
) |
||||
|
|
U.S. Treasury Bond Futures, Chicago Board of Trade, |
|
|
|
|
|
||||
2,088 |
|
strike price $110, expires 2/23/07 |
|
|
|
(1,892,250 |
) |
||||
|
|
U.S. Treasury Notes 10 yr. Futures, Chicago Board of Trade, |
|
|
|
|
|
||||
2,250 |
|
strike price $105, expires 11/21/06 |
|
|
|
(70,312 |
) |
||||
1,752 |
|
strike price $106, expires 2/23/07 |
|
|
|
(684,375 |
) |
||||
|
|
|
|
|
|
(2,653,357 |
) |
||||
Total Options Written (premiums received-$5,689,025) |
|
|
|
(4,885,654 |
) |
||||||
|
|
|
|
|
|
||||||
Total Investments net of options written |
|
|
|
$ |
2,793,718,756 |
|
|||||
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
9.30.06 | PIMCO High Income Fund Semi-Annual Report 11
PIMCO High Income Fund Schedule of Investments
September 30, 2006 (unaudited) (continued)
Notes to Schedule of Investments: (a) Private Placement. Restricted as to resale and may not have a readily available market. (b) Illiquid security. (c) These securities generally pay interest at rates which are periodically pre-determined by reference to a base lending rate plus a premium. These base lending rates are generally either the lending rate offered by one or more major European banks, such as the LIBOR or the prime rate offered by one or more major United States banks, or the certificate of deposit rate. These securities are generally considered to be restricted as the Fund is ordinarily contractually obligated to receive approval from the Agent bank and/or borrower prior to disposition. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional payments by the borrower. Such prepayments cannot be predicted with certainty. (d) 144A SecuritySecurity exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid. (e) Delayed-delivery security. To be settled/delivered after September 30, 2006. (f) Security in default. (g) Fair-valued security. Securities with an aggregate value of $136,595,313, which represents 4.89% of total investments, have been fair valued. (h) Credit-linked trust certificate. (i) All or partial amount segregated as collateral for futures contracts and/or written options. (j) Non-income producing. (k) All or partial amount segregated as collateral for reverse repurchase agreements. |
||
|
|
|
Glossary: |
||
£ |
- |
British Pound Sterling |
|
- |
Euros |
LIBOR |
- |
London Inter-Bank Offered Rate |
NR |
- |
Not Rated |
REIT |
- |
Real Estate Investment Trust |
UNIT |
- |
More than one class of securities traded together. |
VRN |
- |
Variable Rate Note. The interest rate disclosed reflects the rate in effect on September 30, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 PIMCO High Income Fund Semi-Annual Report | 9.30.06 | See accompanying Notes to Financial Statements.
PIMCO High Income Fund Statement of Assets and Liabilities
September 30, 2006 (unaudited)
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
Assets: |
|
|
|
||
Investments, at value (cost-$2,749,265,742) |
|
$ |
2,798,604,410 |
|
|
Cash (including foreign currency of $19,890,682 with a cost of $19,890,731) |
|
23,400,406 |
|
||
Receivable for investments sold |
|
231,038,055 |
|
||
Unrealized appreciation on swaps |
|
158,149,919 |
|
||
Interest receivable |
|
55,098,012 |
|
||
Premium for swaps purchased |
|
49,455,256 |
|
||
Premium receivable for swaps written |
|
1,739,612 |
|
||
Unrealized appreciation of forward foreign currency contracts |
|
204,603 |
|
||
Prepaid expenses |
|
91,612 |
|
||
Total Assets |
|
3,317,781,885 |
|
||
|
|
|
|
||
Liabilities: |
|
|
|
||
Payable for investments purchased |
|
379,820,868 |
|
||
Unrealized depreciation on swaps |
|
165,618,006 |
|
||
Due to broker for sold reverse repurchase agreements |
|
74,100,000 |
|
||
Payable for reverse repurchase agreements |
|
47,175,000 |
|
||
Premium payable for swaps written |
|
37,605,430 |
|
||
Dividends payable to common and preferred shareholders |
|
16,026,504 |
|
||
Options written, at value (premiums received - $5,689,025) |
|
4,885,654 |
|
||
Investment management fees payable |
|
1,490,818 |
|
||
Interest payable on reverse repurchase agreements |
|
1,452,565 |
|
||
Unrealized depreciation of forward foreign currency contracts |
|
1,182,011 |
|
||
Accrued expenses |
|
470,287 |
|
||
Payable for variation margin on futures contracts |
|
387,863 |
|
||
Premium payable for swaps purchased |
|
260,997 |
|
||
Total Liabilities |
|
730,476,003 |
|
||
Preferred shares ($25,000 net asset and liquidation value per share applicable to an aggregate of 36,000 shares issued and outstanding) |
|
900,000,000 |
|
||
Net Assets Applicable to Common Shareholders |
|
$ |
1,687,305,882 |
|
|
|
|
|
|
||
Composition of Net Assets Applicable to Common Shareholders: |
|
|
|
||
Common Stock: |
|
|
|
||
Par value ($0.00001 per share, applicable to 114,943,917 shares issued and outstanding) |
|
$ |
1,149 |
|
|
Paid-in-capital in excess of par |
|
1,635,602,665 |
|
||
Dividends in excess of net investment income |
|
(11,316,711 |
) |
||
Accumulated net realized gain |
|
17,762,073 |
|
||
Net unrealized appreciation of investments, futures contracts, options written, swaps and foreign currency transactions |
|
45,256,706 |
|
||
Net Assets Applicable to Common Shareholders |
|
$ |
1,687,305,882 |
|
|
Net Asset Value Per Common Share |
|
|
$14.68 |
|
|
See accompanying Notes to Financial Statements. | 9.30.06 | PIMCO High Income Fund Semi-Annual Report 13
PIMCO High Income Fund Statement of Operations
For the six months ended September 30, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income: |
|
|
|
|
Interest (net of foreign withholding taxes of $5,205) |
|
$ |
107,163,102 |
|
Dividends |
|
979,952 |
|
|
Facility and other fee income |
|
646,209 |
|
|
Total Investment Income |
|
108,789,263 |
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
Investment management fees |
|
9,066,983 |
|
|
Interest expense on reverse repurchase agreements |
|
1,764,446 |
|
|
Auction agent fees and commissions |
|
1,139,249 |
|
|
Custodian and accounting agent fees |
|
275,858 |
|
|
Shareholder communications |
|
147,891 |
|
|
Legal fees |
|
75,225 |
|
|
Trustees fees and expenses |
|
74,859 |
|
|
Audit and tax services |
|
52,146 |
|
|
New York Stock Exchange listing fees |
|
52,007 |
|
|
Insurance expense |
|
26,696 |
|
|
Transfer agent fees |
|
18,237 |
|
|
Investor relations |
|
14,046 |
|
|
Miscellaneous |
|
16,298 |
|
|
Total expenses |
|
12,723,941 |
|
|
Less: custody credits earned on cash balances |
|
(51,289 |
) |
|
Net expenses |
|
12,672,652 |
|
|
|
|
|
|
|
Net Investment Income |
|
96,116,611 |
|
|
|
|
|
|
|
Realized and Change in Unrealized Gain (Loss): |
|
|
|
|
Net realized gain (loss) on: |
|
|
|
|
Investments |
|
14,901,213 |
|
|
Futures contracts |
|
(8,971,746 |
) |
|
Options written |
|
199,462 |
|
|
Swaps |
|
12,763,624 |
|
|
Foreign currency transactions |
|
(8,311,823 |
) |
|
Net change in unrealized appreciation/depreciation of: |
|
|
|
|
Investments |
|
(21,349,294 |
) |
|
Futures contracts |
|
7,784,166 |
|
|
Options written |
|
(563,162 |
) |
|
Swaps |
|
(7,810,118 |
) |
|
Foreign currency transactions |
|
1,814,074 |
|
|
Net realized and change in unrealized loss on investments, futures contracts, options written, swaps and foreign currency transactions |
|
(9,543,604 |
) |
|
Net Increase in Net Assets Resulting from Investment Operations |
|
86,573,007 |
|
|
|
|
|
|
|
Dividends and Distributions on Preferred Shares from: |
|
|
|
|
Net investment income |
|
(20,930,718 |
) |
|
Net realized gains |
|
(1,265,236 |
) |
|
Total dividends and distributions on preferred shares |
|
(22,195,954 |
) |
|
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations |
|
$ |
64,377,053 |
|
14 PIMCO High Income Fund Semi-Annual Report | 9.30.06 | See accompanying Notes to Financial Statements.
PIMCO High Income Fund Statement of Changes in Net
Assets
Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
Six
Months |
|
|
Year
ended |
|
|
Investment Operations: |
|
|
|
|
|
|
|
Net investment income |
|
$ 96,116,611 |
|
|
$ |
189,307,177 |
|
Net realized gain on investments, futures contracts, options written, swaps and foreign currency transactions |
|
10,580,730 |
|
|
30,431,259 |
|
|
Net change in unrealized appreciation/depreciation of investments, futures contracts, options written, swaps, unfunded loan commitments and foreign currency transactions |
|
(20,124,334 |
) |
|
(14,766,722 |
) |
|
Net increase in net assets resulting from investment operations |
|
86,573,007 |
|
|
204,971,714 |
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions on Preferred Shares from: |
|
|
|
|
|
|
|
Net investment income |
|
(20,930,718 |
) |
|
(32,793,903 |
) |
|
Net realized gains |
|
(1,265,236 |
) |
|
(380,097 |
) |
|
Total dividends and distributions to preferred shareholders |
|
(22,195,954 |
) |
|
(33,174,000 |
) |
|
Net increase in net assets applicable to common shareholders resulting from investment operations |
|
64,377,053 |
|
|
171,797,714 |
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Common Shareholders from: |
|
|
|
|
|
|
|
Net investment income |
|
(83,917,556 |
) |
|
(166,003,982 |
) |
|
Net realized gains |
|
(19,872,654 |
) |
|
(5,426,890 |
) |
|
Total dividends and distributions to common shareholders |
|
(103,790,210 |
) |
|
(171,430,872 |
) |
|
|
|
|
|
|
|
|
|
Capital Share Transactions: |
|
|
|
|
|
|
|
Reinvestment of dividends and distributions |
|
6,616,412 |
|
|
3,476,807 |
|
|
Total increase (decrease) in net assets applicable to common shareholders |
|
(32,796,745 |
) |
|
3,843,649 |
|
|
|
|
|
|
|
|
|
|
Net Assets Applicable to Common Shareholders: |
|
|
|
|
|
|
|
Beginning of period |
|
1,720,102,627 |
|
|
1,716,258,978 |
|
|
End of period (including dividends in excess of net investment income of $(11,316,711) and $(2,585,048), respectively) |
|
$1,687,305,882 |
|
|
$ |
1,720,102,627 |
|
|
|
|
|
|
|
|
|
Common Shares Issued in Reinvestment of Dividends and Distributions |
|
448,585 |
|
|
232,168 |
|
See accompanying Notes to Financial Statements. | 9.30.06 | PIMCO High Income Fund Semi-Annual Report 15
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
1. Organization and Significant Accounting Policies
PIMCO High Income Fund (the Fund), was organized as a Massachusetts business trust on February 18, 2003. Prior to commencing operations on April 30, 2003, the Fund had no operations other than matters relating to its organization and registration as a diversified, closed-end management investment company registered under the Investment Company Act of 1940 and the rules and regulations there under, as amended. Allianz Global Investors Fund Management LLC (the Investment Manager) serves as the Funds Investment Manager and is an indirect wholly-owned subsidiary of Allianz Global Investors of America L.P. (Allianz Global). Allianz Global is an indirect, majority-owned subsidiary of Allianz SE, a publicly traded insurance and financial services company. The Fund has an unlimited amount of $0.00001 par value common stock authorized.
The Funds investment objective is to seek high current income. Capital appreciation is a secondary objective. The Fund attempts to achieve these objectives by investing in a diversified portfolio of U.S. dollar-denominated debt obligations and other income-producing securities that are primarily rated below investment grade.
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (the Interpretation). The Interpretation establishes for all entities, including pass-through entities such as the Fund, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Fund management has recently begun to evaluate the application of the Interpretation, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, the Funds are in the process of reviewing the Standard against its current valuation policies to determine future applicability.
In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been asserted. However, the Fund expects the risk of any loss to be remote.
The following is a summary of significant accounting policies followed by the Fund:
(a) Valuation of Investments
Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Portfolio securities and other financial instruments for which market quotations are not readily available or if a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to guidelines established by the Board of Trustees, including certain fixed income securities which may be valued with reference to securities whose prices are more readily available. The Funds investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the last quoted mean price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. The Funds investments in senior floating rate loans (Senior Loans) for which a secondary market exists will be valued at the mean of the last available bid and asked prices in the market for such Senior Loans, as provided by an independent pricing service. Other Senior Loans are valued at fair value pursuant to guidelines established by the Board of Trustees. Such guidelines include consideration and evaluation of: (1) the creditworthiness of the borrower and any intermediate participants; (2) the term of the Senior Loan; (3) recent prices in the market for similar loans, if any; (4) recent prices in the market for loans of similar quality, coupon rate, and period until next interest rate reset and maturity; and (5) general economic and market conditions
16 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
1. Organization and Significant Accounting Policies (continued)
affecting the fair value of the Senior Loan. Exchange traded options and futures are valued at the settlement price determined by the relevant exchange. At September 30, 2006, no Senior Loans were fair valued. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement value. Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days. The prices used by the Fund to value securities may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. The Funds net asset value is determined daily as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open for business.
(b) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date. Securities purchased and sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on the identified cost basis. Interest income is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized to interest income over the lives of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Facility fees and other fees (such as origination fees) received by the Fund are amortized as income over the expected term of the senior loan. Commitment fees received by the Fund relating to unfunded purchase commitments are deferred and amortized to facility fee income over the period of the commitment.
(c) Federal Income Taxes
The Fund intends to distribute all of its taxable income and to comply with the other requirements of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required.
(d) Dividends and Distributions Common Stock
The Fund declares dividends from net investment income monthly to common shareholders. Distributions of net realized capital gains, if any, are paid at least annually. The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These book-tax differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their income tax treatment; temporary differences do not require reclassification. To the extent dividends and/or distributions exceed current and accumulated earnings and profits for federal income tax purposes; they are reported as dividends and/or distributions of paid-in capital in excess of par.
Net investment income and net realized gains differ for financial statement and tax purposes primarily due to the treatment of amounts received under swap agreements. For the six months ended September 30, 2006, the Fund received $9,761,316 from swap agreements, which are treated as net realized gain (loss) for financial statement purposes and as net income (loss) for federal income tax purposes.
(e) Foreign Currency Translation
The Funds accounting records are maintained in U.S. dollars as follows: (1) the foreign currency market value of investments and other assets and liabilities denominated in foreign currency are translated at the prevailing exchange rate at the end of the period; and (2) purchases and sales, income and expenses are translated at the prevailing exchange rate on the respective dates of such transactions. The resulting net foreign currency gain or loss is included in the Statement of Operations.
The Fund does not generally isolate that portion of the results of operations arising as a result of changes in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realized and unrealized gain (loss) on investments. However, the Fund does isolate the effect of fluctuations in foreign currency exchange rates when determining the gain or loss upon the sale or maturity of foreign currency denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign currency gain or loss for both financial reporting and income tax reporting purposes.
9.30.06 | PIMCO High Income Fund Semi-Annual Report 17
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
1. Organization and Significant Accounting Policies (continued)
(f) Futures Contracts
A futures contract is an agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker an amount of cash or securities equal to the minimum initial margin requirements of the exchange. Pursuant to the contracts, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contracts. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized appreciation or depreciation. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contracts at the time they were opened and the value at the time they were closed. Any unrealized appreciation or depreciation recorded is simultaneously reversed. The use of futures transactions involves the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts.
(g) Option Transactions
The Fund may purchase and write (sell) put and call options for hedging purposes, risk management purposes or as a part of its investment strategy. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by the premiums paid. The proceeds from the securities sold through the exercise of put options is decreased by the premiums paid.
When an option is written, the premium received is recorded as an asset with an equal liability and is subsequently marked to market to reflect the current market value of the option written. These liabilities are reflected as options written in the Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transactions, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing a security at a price different from the current market.
(h) Interest Rate/Credit Default Swaps
The Fund enters into interest rate and credit default swap contracts (swaps) for investment purposes, to manage its interest rate and credit risk or to add leverage.
As a seller in the credit default swap contract, the Fund is required to pay the notional amount or other agreed-upon value of a referenced debt obligation to the counterparty in the event of a default by a third party, such as a U.S. or foreign corporate issuer, on the referenced debt obligation. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. Such periodic payments are accrued daily and recorded as realized gain (loss).
The Fund may also purchase credit default swap contracts in order to hedge against the risk of default of debt securities held, in which case the Fund would function as the counterparty referenced in the preceding paragraph. As a purchaser of a credit default swap contract, the Fund would receive the notional amount or other agreed upon value of a referenced debt obligation from the counterparty in the event of default by a third party, such as a U.S. or foreign corporate issuer on the referenced obligation. In return, the Fund would make periodic payments to the counterparty over the term of the contract provided no event of default has occurred. Such periodic payments are accrued daily and recorded as realized gain (loss).
Interest rate swap agreements involve the exchange by the Fund with a counterparty of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Net periodic payments received by the Fund are included as part of realized gain (loss) and or change in unrealized appreciation/depreciation on the Statement of Operations.
Swaps are marked to market daily based upon quotations from brokers or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation. For a credit default swap sold by the Fund, payment of the
18 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
1. Organization and Significant Accounting Policies (continued)
agreed upon amount made by the Fund in the event of default of the referenced debt obligation is recorded as the cost of the referenced debt obligation purchased/received. For a credit default swap purchased by the Fund, the agreed upon amount received by the Fund in the event of default of the referenced debt obligation is recorded as proceeds from sale/delivery of the referenced debt obligation and the resulting gain or loss realized on the referenced debt obligation is recorded as such by the Fund.
Entering into swaps involves, to varying degrees, elements of credit, market and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in net interest rates.
(i) Senior Loans
The Fund purchases assignments of Senior Loans originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the Agent) for a lending syndicate of financial institutions (the Lender). When purchasing an assignment, the Fund succeeds all the rights and obligations under the loan agreement with the same rights and obligations as the assigning Lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender.
(j) Forward Foreign Currency Contracts
A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The Fund may enter into forward foreign currency contracts for the purpose of hedging against foreign currency risk arising from the investment or anticipated investment in securities denominated in foreign currencies. The Fund may also enter these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. The market value of a forward foreign currency contract fluctuates with changes in forward currency exchange rates. All commitments are marked to market daily at the applicable exchange rates and any resulting unrealized appreciation or depreciation is recorded. Realized gains or losses are recorded at the time the forward contract matures or by delivery of the currency. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
(k) Credit-Linked Trust Certificates
The Fund may purchase credit-linked trust certificates. Credit-linked trust certificates are investments in a limited purpose trust or other vehicle formed under state law which, in turn, invests in a basket of derivative instruments, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to the high yield or another fixed income market.
Similar to an investment in a bond, investments in credit-linked trust certificates represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the certificate. However, these payments are conditioned on the trusts receipt of payments from, and the trusts potential obligations to, the counterparties to the derivative instruments and other securities in which the trust invests.
(l) Repurchase Agreements
The Fund enters into transactions with its custodian bank or securities brokerage firms whereby it purchases securities under agreements to resell at an agreed upon price and date (repurchase agreements). Such agreements are carried at the contract amount in the financial statements. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, are held by the custodian bank until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Fund require that the market value of the collateral, including accrued interest thereon, is sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited.
(m) Reverse Repurchase Agreements
The Fund enters into reverse repurchase agreements. In a reverse repurchase agreement, the Fund sells securities to a bank or broker-dealer and agrees to repurchase the securities at a mutually agreed date and price. Generally, the
9.30.06 | PIMCO High Income Fund Semi-Annual Report 19
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
1. Organization and Significant Accounting Policies (continued)
effect of such a transaction is that the Fund can recover and reinvest all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement and still be entitled to the returns associated with those portfolio securities. Such transactions are advantageous if the interest cost to the Fund of the reverse repurchase transaction is less than the returns it obtains on investments purchased with the cash. Unless the Fund covers its positions in reverse repurchase agreements (by segregating liquid assets at least equal in amount to the forward purchase commitment), its obligations under the agreements will be subject to the Funds limitations on borrowings. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities that the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending determination by the other party, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities. At September 30, 2006, the Fund had reverse repurchase agreements outstanding of $47,175,000. The weighted average daily balance of reverse repurchase agreements outstanding for the six months ended September 30, 2006 was $83,667,966 at a weighted average interest rate of 4.15%.
(n) When-Issued/Delayed-Delivery Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery basis. The transactions involve a commitment to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Fund will set aside and maintain until the settlement date in a designated account, liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed-delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a realized gain or loss. When a security on a delayed-delivery basis is sold, the Fund does not participate in future gains and losses with respect to the security.
(o) Custody Credits on Cash Balances
The Fund benefits from an expense offset arrangement with its 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 Fund.
2. Investment Manager/Sub-Adviser
The Fund has entered into an Investment Management Agreement (the 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, the Funds investment activities, business affairs and administrative matters. Pursuant to the Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.70% of the Funds average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding.
The Investment Manager has retained its affiliate, Pacific Investment Management Company LLC (the Sub-Adviser), to manage the Funds investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all the Funds investment decisions. The Investment Manager and not the Fund pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services, at an annual rate of 0.3575% of the Funds average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding, for the period from commencement of operations through April 30, 2008, and at an annual rate of 0.50% of average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding, thereafter.
3. Investment in Securities
For the six months ended September 30, 2006, purchases and sales of investments, other than short-term securities, were $1,094,098,351 and $1,141,143,426, respectively.
20 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
3. Investment in Securities (continued)
(a) Futures contracts outstanding at September 30, 2006:
Type |
|
Notional |
|
Expiration |
|
Unrealized |
|
|||||
Long: |
Financial Future Euro90 day |
|
$513,250 |
|
|
12/17/07 |
|
|
|
$ 772,784 |
|
|
|
Financial Future Euro90 day |
|
430,500 |
|
|
3/17/08 |
|
|
|
496,187 |
|
|
|
Financial Future Euro90 day |
|
267,750 |
|
|
6/16/08 |
|
|
|
56,475 |
|
|
|
Financial Future Euro90 day |
|
285,250 |
|
|
9/15/08 |
|
|
|
284,530 |
|
|
|
Financial Future Euro90 day |
|
123,250 |
|
|
12/15/08 |
|
|
|
390,887 |
|
|
|
Financial Future Euro90 day |
|
17,500 |
|
|
3/16/09 |
|
|
|
57,750 |
|
|
|
Financial Future Euro90 day |
|
17,500 |
|
|
6/15/09 |
|
|
|
58,625 |
|
|
|
|
|
|
|
|
|
|
$2,117,238 |
|
|
(b) Transactions in options written for the six months ended September 30, 2006:
|
|
Contracts/ |
|
Premiums |
|
||||
Options outstanding, March 31, 2006 |
|
|
58,607,211 |
|
|
|
$ 2,490,254 |
|
|
Options written |
|
|
36,412 |
|
|
|
11,319,123 |
|
|
Options terminated in closing transactions |
|
|
(15,833,693 |
) |
|
|
(8,120,352 |
) |
|
Options outstanding, September 30, 2006 |
|
|
42,809,930 |
|
|
|
$ 5,689,025 |
|
|
(c) Credit default swaps contracts outstanding at September 30, 2006:
Swap |
|
Notional |
|
Termination |
|
Fixed |
|
Unrealized |
|
||||
Bank of America |
|
|
|
|
|
|
|
|
|
||||
Abitibi-Consolidated |
|
$ 3,000 |
|
|
3/20/07 |
|
|
2.20 |
% |
|
$ 13,845 |
|
|
AES Corp. |
|
1,000 |
|
|
12/20/07 |
|
|
1.50 |
% |
|
11,631 |
|
|
ArvinMeritor |
|
3,000 |
|
|
3/20/07 |
|
|
2.35 |
% |
|
9,283 |
|
|
Bombardier |
|
3,000 |
|
|
12/20/06 |
|
|
1.75 |
% |
|
7,874 |
|
|
Celestica |
|
5,000 |
|
|
6/20/11 |
|
|
2.40 |
% |
|
(67,965 |
) |
|
Ford Motor Credit |
|
10,000 |
|
|
12/20/06 |
|
|
4.75 |
% |
|
107,789 |
|
|
Williams Cos. |
|
2,000 |
|
|
12/20/07 |
|
|
1.25 |
% |
|
16,474 |
|
|
Barclays Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic of Brazil |
|
5,000 |
|
|
10/20/11 |
|
|
1.48 |
% |
|
31,946 |
|
|
Bear Stearns |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable Systems Corp. |
|
3,000 |
|
|
12/20/07 |
|
|
2.15 |
% |
|
64,606 |
|
|
Georgia-Pacific Corp. |
|
1,500 |
|
|
12/20/07 |
|
|
0.82 |
% |
|
(305 |
) |
|
MGM Mirage |
|
3,500 |
|
|
9/20/09 |
|
|
1.92 |
% |
|
78,299 |
|
|
Royal Caribbean Cruises |
|
3,500 |
|
|
9/20/07 |
|
|
1.50 |
% |
|
35,787 |
|
|
Citigroup |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied Waste Industries |
|
3,500 |
|
|
9/20/07 |
|
|
2.18 |
% |
|
47,415 |
|
|
Crown Cork |
|
3,500 |
|
|
9/20/07 |
|
|
2.38 |
% |
|
54,337 |
|
|
Ford Motor Credit |
|
5,000 |
|
|
9/20/07 |
|
|
2.00 |
% |
|
8,743 |
|
|
Owens-Brockway |
|
7,000 |
|
|
9/20/07 |
|
|
2.05 |
% |
|
50,312 |
|
|
Starwood Hotels & Resorts Worldwide |
|
3,500 |
|
|
9/20/07 |
|
|
1.20 |
% |
|
26,358 |
|
|
9.30.06 | PIMCO High Income Fund Semi-Annual Report 21
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
3. Investment in Securities (continued)
Swap |
|
Notional |
|
Termination |
|
Fixed |
|
Unrealized |
|
||||||
Deutsche Bank |
|
|
|
|
|
|
|
|
|
||||||
Dow Jones CDX High Yield |
|
|
$125,000 |
|
|
12/20/11 |
|
|
3.25 |
% |
|
|
$ (189,633 |
) |
|
Russian Federation |
|
|
15,000 |
|
|
6/20/07 |
|
|
0.44 |
% |
|
|
36,977 |
|
|
SoftBank Corp. |
|
|
¥308,000 |
|
|
9/20/07 |
|
|
2.30 |
% |
|
|
3,788 |
|
|
Goldman Sachs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA |
|
|
$ 1,000 |
|
|
12/20/07 |
|
|
0.75 |
% |
|
|
(346 |
) |
|
Starwood Hotels & Resorts Worldwide |
|
|
1,000 |
|
|
12/20/07 |
|
|
1.10 |
% |
|
|
7,858 |
|
|
JP Morgan Chase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AES Corp. |
|
|
3,500 |
|
|
9/20/07 |
|
|
2.15 |
% |
|
|
57,513 |
|
|
Bowater |
|
|
3,000 |
|
|
3/20/07 |
|
|
1.60 |
% |
|
|
8,022 |
|
|
Electronic Data |
|
|
1,000 |
|
|
12/20/07 |
|
|
1.30 |
% |
|
|
14,750 |
|
|
Smurfit-Stone Container Corp. |
|
|
4,700 |
|
|
12/20/09 |
|
|
2.30 |
% |
|
|
(3,230 |
) |
|
Lear Corp. |
|
|
5,000 |
|
|
3/20/07 |
|
|
7.50 |
% |
|
|
136,159 |
|
|
Lehman Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ArvinMeritor |
|
|
3,000 |
|
|
12/20/09 |
|
|
2.35 |
% |
|
|
(98,415 |
) |
|
Ford Motor Credit |
|
|
4,000 |
|
|
9/20/07 |
|
|
2.15 |
% |
|
|
12,190 |
|
|
NRG Energy |
|
|
5,000 |
|
|
9/20/11 |
|
|
2.25 |
% |
|
|
50,454 |
|
|
Merrill Lynch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AES Corp. |
|
|
8,000 |
|
|
6/20/07 |
|
|
0.95 |
% |
|
|
28,282 |
|
|
Morgan Stanley |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gazprom Capital |
|
|
13,000 |
|
|
4/20/11 |
|
|
1.05 |
% |
|
|
104,224 |
|
|
Georgia-Pacific Corp. |
|
|
5,000 |
|
|
12/20/09 |
|
|
1.15 |
% |
|
|
(56,406 |
) |
|
Royal Bank of Scotland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC |
|
|
25,000 |
|
|
3/20/07 |
|
|
5.00 |
% |
|
|
513,702 |
|
|
UBS AG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Motor Credit |
|
|
2,500 |
|
|
12/20/06 |
|
|
5.00 |
% |
|
|
28,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,150,875 |
|
|
(d) Interest rate swap agreements outstanding at September 30, 2006:
|
|
|
|
|
|
Rate Type |
|
|
|
||||||
Swap Counterparty |
|
Notional |
|
Termination |
|
Payments |
|
Payments |
|
Unrealized |
|
||||
Deutsche Bank |
|
|
$ 207,200 |
|
|
12/19/08 |
|
3 month LIBOR |
|
5.00% |
|
|
$ (23,082 |
) |
|
Deutsche Bank |
|
|
£ 400 |
|
|
9/15/10 |
|
6 month LIBOR |
|
5.00% |
|
|
(2 |
) |
|
Goldman Sachs |
|
|
$ 39,400 |
|
|
12/19/08 |
|
3 month LIBOR |
|
5.00% |
|
|
(11,643 |
) |
|
Goldman Sachs |
|
|
1,800,000 |
|
|
6/21/26 |
|
6.00% |
|
3 month LIBOR |
|
|
(117,572,400 |
) |
|
Goldman Sachs |
|
|
1,800,000 |
|
|
6/21/26 |
|
3 month LIBOR |
|
6.00% |
|
|
118,654,648 |
|
|
Lehman Securities |
|
|
33,100 |
|
|
12/20/16 |
|
5.00% |
|
3 month LIBOR |
|
|
(981,951 |
) |
|
UBS AG |
|
|
8,700 |
|
|
12/19/08 |
|
3 month LIBOR |
|
5.00% |
|
|
(2,394 |
) |
|
UBS AG |
|
|
400,000 |
|
|
7/20/16 |
|
5.10% |
|
3 month LIBOR |
|
|
(5,793,070 |
) |
|
UBS AG |
|
|
400,000 |
|
|
7/20/16 |
|
3 month LIBOR |
|
6.45% |
|
|
3,681,336 |
|
|
UBS AG |
|
|
685,000 |
|
|
6/21/25 |
|
5.70% |
|
3 month LIBOR |
|
|
(40,817,164 |
) |
|
UBS AG |
|
|
680,000 |
|
|
6/21/25 |
|
3 month LIBOR |
|
5.70% |
|
|
34,246,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ (8,618,962 |
) |
|
LIBORLondon Inter-bank Offered Rate
¥Japanese Yen
22 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
3. Investment in Securities (continued)
The Fund received $6,750,000 par value in U.S. Treasury Bills as collateral for swap contracts.
(e) Forward foreign currency contracts outstanding at September 30, 2006:
|
|
U.S.
$ Value |
|
U.S.
$ Value |
|
Unrealized |
|
|
|||||
Purchased: |
4,515,000 settling 10/31/06 |
|
$ 5,743,640 |
|
|
$ 5,729,927 |
|
|
|
$ (13,713 |
) |
|
|
|
¥ 4,423,139,000 settling 11/15/06 |
|
38,885,658 |
|
|
37,717,360 |
|
|
|
(1,168,298 |
) |
|
|
Sold: |
54,660,000 settling 10/31/06 |
|
69,572,888 |
|
|
69,368,285 |
|
|
|
204,603 |
|
|
|
|
|
|
|
|
|
|
|
$ (977,408 |
) |
|
|
(f) Open reverse repurchase agreements at September 30, 2006:
Counterparty |
|
Rate |
|
Trade |
|
Maturity |
|
Principal & Interest |
|
Par |
|
||||
Lehman Securities |
|
1.00 |
% |
|
5/26/06 |
|
|
5/26/08 |
|
|
$ 4,904,878 |
|
|
$ 4,887,500 |
|
|
|
2.00 |
% |
|
9/8/06 |
|
|
4/25/08 |
|
|
4,593,362 |
|
|
4,587,500 |
|
|
|
4.50 |
% |
|
6/26/06 |
|
|
6/26/08 |
|
|
38,157,113 |
|
|
37,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$47,175,000 |
|
Collateral for open reverse repurchase agreements at September 30, 2006 as reflected in the schedule of investments:
Counterparty |
|
Description |
|
Rate |
|
Maturity |
|
Par |
|
Value |
|
||
Lehman Securities |
|
American Airlines, Inc. |
|
8.608 |
% |
|
10/1/12 |
|
|
$ 5,000,000 |
|
$ 5,184,375 |
|
|
|
Hawaiian Telcom |
|
9.75 |
% |
|
5/1/13 |
|
|
5,000,000 |
|
5,162,500 |
|
|
|
Targeted Return Index |
|
7.548 |
% |
|
5/1/16 |
|
|
40,000,000 |
|
40,085,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,432,315 |
|
4. Income Tax Information
The cost basis of portfolio securities of $2,749,265,742 for federal income tax purposes is substantially the same for both federal income tax purposes and financial reporting purposes. Aggregated gross unrealized appreciation for securities in which there is an excess value over tax cost is $76,387,015; aggregate gross unrealized depreciation for securities in which there is an excess of tax cost over value is $27,048,347; net unrealized appreciation for federal income tax purposes is $49,338,668.
5. Auction Preferred Shares
The Fund has issued 7,200 shares of Preferred Shares Series M, 7,200 shares of Preferred Shares Series T, 7,200 shares of Preferred Shares Series W, 7,200 shares of Preferred Shares Series TH and 7,200 shares of Preferred Shares Series F each with a net asset and liquidation value of $25,000 per share plus accrued dividends.
Dividends and distributions of net realized long-term capital gains, if any, are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures.
9.30.06 | PIMCO High Income Fund Semi-Annual Report 23
PIMCO High Income Fund Notes to Financial Statements
September 30, 2006 (unaudited)
5. Auction Preferred Shares (continued)
For the six months ended September 30, 2006, the annualized dividend rate ranged from:
|
|
High |
|
Low |
|
At September 30, 2006 |
|
|||
Series M |
|
5.16 |
% |
|
4.50 |
% |
|
5.06 |
% |
|
Series T |
|
5.23 |
% |
|
4.50 |
% |
|
5.10 |
% |
|
Series W |
|
5.26 |
% |
|
4.50 |
% |
|
5.20 |
% |
|
Series TH |
|
5.26 |
% |
|
4.60 |
% |
|
5.20 |
% |
|
Series F |
|
5.15 |
% |
|
4.60 |
% |
|
4.99 |
% |
|
The Fund is subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Fund from declaring any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote together with the common stock but vote separately as a class to elect two Trustees and on any matters affecting the rights of the preferred shares.
6. Subsequent Common Dividend Declarations
On October 2, 2006, a dividend of $0.121875 per share was declared to common shareholders payable November 1, 2006 to shareholders of record on October 12, 2006.
On November 1, 2006, a dividend of $0.121875 per share was declared to common shareholders payable December 1, 2006 to shareholders of record on November 13, 2006.
7. Legal Proceedings
In June and September 2004, the Investment Manager, certain of its affiliates (including Allianz Global Investors Distributors LLC and PEA Capital LLC) and Allianz Global, agreed to settle, without admitting or denying the allegations, claims brought by the Securities and Exchange Commission (the Commission), the New Jersey Attorney General and the California Attorney General alleging violations of federal and state securities laws with respect to certain open-end funds for which the Investment Manager serves as investment adviser. Two settlements (with the Commission and New Jersey) related to an alleged market timing arrangement in certain open-end funds sub-advised by PEA Capital LLC. Two settlements (with the Commission and California) related to the alleged use of cash and fund portfolio commissions to finance shelf-space arrangements with broker-dealers for open-end funds. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims related to market timing and $20.6 million to settle the claims related to shelf space. In addition to monetary payments, the settling parties agreed to undertake certain corporate governance, compliance and disclosure reforms related to market timing, brokerage commissions, revenue sharing and shelf space arrangements, and consented to cease and desist orders and censures. The settling parties did not admit or deny the findings in these settlements. None of the settlements allege that any inappropriate activity took place with respect to the Fund.
Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in fifteen lawsuits filed in various jurisdictions. Eleven of those lawsuits concern market timing and have been transferred to and consolidated for pre-trial proceedings in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland; the other four lawsuits concern revenue sharing and have been consolidated into a single action in the U.S. District Court for the District of Connecticut. The lawsuits generally relate to the same allegations that are the subject of the regulatory proceedings discussed above. The lawsuits seek, among other things, unspecified compensatory damages plus interest and, in some cases, punitive damages, the rescission of investment advisory contracts, the return of fees paid under those contracts, restitution, and waiver of or return of certain sales charges paid by open-end fund shareholders.
The Investment Manager and the Sub-Adviser believe that these matters are not likely to have a material adverse effect on the Fund or on their ability to perform their respective investment advisory activities relating to the Fund.
The foregoing speaks only as of the date hereof.
8. Corporate Changes
On September 12, 2006, the Funds Board of Trustees appointed William B. Ogden IV as a class I Trustee. On October 10, 2006, David C. Flattum, an interested Trustee, resigned as a Class III Trustee.
24 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund Financial Highlights
For a share of common stock outstanding throughout each period
|
|
For
the |
|
Year Ended |
|
April
30, 2003* |
|
||||||
|
|
(unaudited) |
|
March 31, 2006 |
|
March 31, 2005 |
|
March 31, 2004 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net asset value, beginning of period |
|
$15.02 |
|
|
$15.02 |
|
|
$15.45 |
|
|
$14.33 |
** |
|
Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.84 |
|
|
1.66 |
|
|
1.65 |
|
|
1.28 |
|
|
Net realized and unrealized gain (loss) on investments, futures contracts, options written, swaps, unfunded loan commitments and foreign currency transactions |
|
(0.09 |
) |
|
0.13 |
|
|
0.03 |
|
|
1.23 |
|
|
Total from investment operations |
|
0.75 |
|
|
1.79 |
|
|
1.68 |
|
|
2.51 |
|
|
Dividends and Distributions on Preferred Shares from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
(0.18 |
) |
|
(0.29 |
) |
|
(0.14 |
) |
|
(0.07 |
) |
|
Net realized gains |
|
(0.01 |
) |
|
(0.00 |
)(a) |
|
(0.01 |
) |
|
|
|
|
Total dividends and distributions on preferred shares |
|
(0.19 |
) |
|
(0.29 |
) |
|
(0.15 |
) |
|
(0.07 |
) |
|
Net increase in net assets applicable to common shareholders resulting from investment operations |
|
0.56 |
|
|
1.50 |
|
|
1.53 |
|
|
2.44 |
|
|
Dividends and Distributions to Common Shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
(0.73 |
) |
|
(1.46 |
) |
|
(1.51 |
) |
|
(1.22 |
) |
|
Net realized gains |
|
(0.17 |
) |
|
(0.04 |
) |
|
(0.45 |
) |
|
|
|
|
Total dividends and distributions to common shareholders |
|
(0.90 |
) |
|
(1.50 |
) |
|
(1.96 |
) |
|
(1.22 |
) |
|
Capital Share Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock offering costs charged to paid-in capital in excess of par |
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
Preferred shares offering costs/ underwriting discounts charged to paid-in capital in excess of par |
|
|
|
|
|
|
|
|
|
|
(0.09 |
) |
|
Total capital share transactions |
|
|
|
|
|
|
|
|
|
|
(0.10 |
) |
|
Net asset value, end of period |
|
$14.68 |
|
|
$15.02 |
|
|
$15.02 |
|
|
$15.45 |
|
|
Market price, end of period |
|
$15.75 |
|
|
$15.07 |
|
|
$14.08 |
|
|
$14.78 |
|
|
Total Investment Return (1) |
|
11.03 |
% |
|
18.35 |
% |
|
8.81 |
% |
|
7.08 |
% |
|
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of period (000) |
|
$1,687,306 |
|
|
$1,720,103 |
|
|
$1,716,259 |
|
|
$1,765,102 |
|
|
Ratio of expenses to average net assets (2)(3) |
|
1.51 |
%(4) |
|
1.28 |
% |
|
1.26 |
% |
|
1.18 |
%(4) |
|
Ratio of expenses to average net assets, excluding interest expense (2)(3) |
|
1.30 |
%(4) |
|
1.27 |
% |
|
1.26 |
% |
|
1.18 |
%(4) |
|
Ratio of net investment income to average net assets (2) |
|
11.39 |
%(4) |
|
11.02 |
% |
|
10.68 |
% |
|
9.34 |
%(4) |
|
Preferred shares asset coverage per share |
|
$71,844 |
|
|
$72,762 |
|
|
$72,662 |
|
|
$74,024 |
|
|
Portfolio turnover |
|
42 |
% |
|
65 |
% |
|
40 |
% |
|
73 |
% |
|
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share.
(a) Less than $0.005 per common share.
(1) Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day of each period and a sale of a share of common stock 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 Funds 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(o) in Notes to Financial Statements).
(4) Annualized.
See accompanying Notes to Financial Statements.| 9.30.06 | PIMCO High Income Fund Semi-Annual Report 25
PIMCO High Income Fund
Matters Relating to the Trustees Consideration of the Investment Management and
Portfolio Management Agreements (unaudited)
The Investment Company Act of 1940 requires that both the full Board of Trustees (the Trustees) and a majority of the non-interested (Independent) Trustees, voting separately, approve the Funds Management Agreements (the Advisory Agreements) with the Investment Manager 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 on June 20 and 21, 2006 (the Contract Review Meeting) for the specific purpose of considering whether to approve 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 Funds Advisory Agreements and the Sub-Advisory Agreements should be approved for a one-year period commencing July 1, 2006.
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 and the Sub-Adviser under the Agreements.
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 Analytical Services Inc. (Lipper Inc.) on the total return investment performance (based on net assets) of the Fund for various time periods and the investment performance of a group of funds with substantially similar investment classifications/objectives identified by Lipper Inc., (ii) information provided by Lipper Inc. on the Funds management fees and other expenses and the management fees and other expenses of comparable funds identified by Lipper Inc., (iii) information regarding the investment performance and management fees of comparable portfolios of other clients of the Sub-Adviser, including institutional separate accounts and other clients, (iv) the profitability to the Investment Manager from its relationship with the Fund for the twelve months ended March 31, 2006, (v) descriptions of various functions performed by the Investment Manager and the Sub-Adviser for the Fund, 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 Fund.
The Trustees conclusions as to the continuation of the Agreements were based on a comprehensive consideration of all information provided to the Trustees and 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, giving different weights to various factors.
As part of their review, the Trustees examined the Investment Managers and the Sub-Advisers abilities to provide high quality investment management and other services to the Fund. 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 Fund; 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 Fund. In addition, the Trustees reviewed the quality of the Investment Managers and the Sub-Advisers services with respect to regulatory compliance and compliance with the investment policies of the Fund; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Fund; and conditions that might affect the Investment Managers or the Sub-Advisers ability to provide high quality services to the Fund in the future under the Agreements, including each organizations respective business reputation, financial condition and operational stability. Based on the foregoing, the Trustees concluded that the Sub-Advisers investment process, research capabilities and philosophy were well suited to the Fund given their 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.
26 PIMCO High Income Fund Semi-Annual Report | 9.30.06
PIMCO High Income Fund
Matters Relating to the Trustees Consideration of the Investment Management and
Portfolio Management Agreements (unaudited) (continued)
Based on information provided by Lipper Inc., the Trustees also reviewed the Funds total return investment performance as well as the performance of comparable funds identified by Lipper Inc. 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 the Funds performance.
In assessing the reasonableness of the Funds fees under the Agreements, the Trustees considered, among other information, the Funds management fee and the total expense ratio as a percentage of average net assets attributable to common shares and the management fee and total expense ratios of comparable funds identified by Lipper Inc.
The Trustees specifically took note of how the Fund compared to its Lipper Inc. peers as to performance and other expenses. The Trustees noted that while the Fund is not charged a separate administration fee, it was not clear whether the peer funds in the Lipper Inc. categories were charged such a fee by their investment managers. Thus, the Trustees, at the recommendation of the Investment Manager, considered the total expenses of the Fund compared to the total expenses of the peer funds, recognizing that the fees for management and administrative services would be subsumed within the total expense ratio.
The Trustees noted that the Fund outperformed its peer median and average group for the period ended April 30, 2006, but underperformed its peer median and average group for the three-years ended April 30, 2006. The Trustees also noted the Funds expense ratio was significantly below the average and median for its peer group.
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 Managers and the Sub-Advisers responses and efforts relating to investment performance and the comparative positioning of each Fund with respect to the management fee paid to the Investment Manager.
The Trustees also considered the management fees charged by the Sub-Adviser to other clients, including institutional separate accounts with investment strategies similar to those of the Fund. Regarding the institutional separate accounts, they noted that the management fees paid by the Fund are generally higher than the fees paid by other clients of the Sub-Adviser, but were advised that the administrative burden for the Investment Manager and the Sub-Adviser with respect to the Fund is also relatively higher, due in part to the more extensive regulatory regime to which the Fund is subject in comparison to institutional separate accounts. The Trustees noted that the management fees paid by the Fund are generally higher than the fees paid by the open-end funds but were advised that there are additional portfolio management challenges in managing the Fund, such as the use of leverage and meeting a regular dividend.
The Trustees also took into account that the Fund has 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 Funds total managed assets, including assets attributable to preferred shares and other forms of leverage outstanding). In this regard, the Trustees took into account that the Investment Manager and the Sub-Adviser have a financial incentive for the Fund to continue to have preferred shares outstanding, which may create a conflict of interest between the Investment Manager and the Sub-Adviser, on the one hand, and each 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 Funds use of leverage through preferred shares continues to be appropriate and in the interests of the Funds common shareholders.
Based on a profitability analysis provided by the Investment Manager, the Trustees also considered the profitability of the Investment Manager from its relationship with each Fund and determined that such profitability was not excessive.
The Trustees also took into account that, as a closed-end investment company, the Fund do not currently intend to raise additional assets, so the assets of the Fund will grow (if at all) only through the investment performance of each
9.30.06 | PIMCO High Income Fund Semi-Annual Report 27
PIMCO High Income Fund
Matters Relating to the Trustees Consideration of the Investment Management and
Portfolio Management Agreements (unaudited) (continued)
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 Fund.
After reviewing these and other factors described herein, the Trustees concluded, 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 Fund.
28 PIMCO High Income Fund Semi-Annual Report | 9.30.06
Trustees and Principal Officers
Robert E. Connor
Trustee, Chairman of the Board of Trustees
Paul Belica
Trustee
John J. Dalessandro II
Trustee
Hans W. Kertess
Trustee
William B. Ogden IV
Trustee
R. Peter Sullivan III
Trustee
Brian S. Shlissel
President & Chief Executive Officer
Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Thomas J. Fuccillo
Vice President, Secretary & Chief Legal Officer
Youse E. Guia
Chief Compliance Officer
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 High Income Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
The financial information included herein is taken from the records of the Fund without examination by an independent registered public accounting firm, who did not express an opinion hereon.
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 Fund may purchase shares of its common stock in the open market.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarter of its fiscal year on Form N-Q. The Funds Form N-Q is available on the SECs website at www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
A description of the policies and procedures that the Fund has adopted to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities held during the twelve months ended June 30, 2006 is available (i) without charge upon request by calling the Funds shareholder servicing agent at (800) 331-1710; (ii) on the Funds website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at sec.gov.
Information on the Fund is available at www.allianzinvestors.com/closedendfunds or by calling the Funds shareholder servicing agent at (800) 331-1710.
ITEM 2. CODE OF ETHICS
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 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
Not required in this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not effective at the time of this filing
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED COMPANIES.
Period |
|
Total Number |
|
Average |
|
Total Number |
|
Maximum Number of |
|
April 2006 |
|
N/A |
|
15.03 |
|
75,421 |
|
N/A |
|
May 2006 |
|
N/A |
|
14.96 |
|
75,526 |
|
N/A |
|
June 2006 |
|
N/A |
|
14.71 |
|
75,514 |
|
N/A |
|
July 2006 |
|
N/A |
|
14.49 |
|
76,743 |
|
N/A |
|
August 2006 |
|
N/A |
|
14.54 |
|
74,490 |
|
N/A |
|
September 2006 |
|
N/A |
|
14.77 |
|
70,891 |
|
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 Funds Board of Trustees since the Fund last provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrants President and Chief Executive Officer and Principal Financial Officer have concluded that the registrants 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 registrants 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 99.302 CERT - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(b) |
|
Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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.
PIMCO High Income Fund
By /s/ Brian S. Shlissel |
|
|
Brian S. Shlissel, President & Chief Executive Officer |
||
|
||
Date: December 5, 2006 |
||
|
||
By /s/ Lawrence G. Altadonna |
|
|
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer |
||
|
||
Date: December 5, 2006 |
||
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 |
|
|
Brian S. Shlissel, President & Chief Executive Officer |
||
|
||
Date: December 5, 2006 |
||
|
||
By /s/ Lawrence G. Altadonna |
|
|
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer |
||
|
||
Date: December 5, 2006 |
||