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 811-21374
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PIMCO Floating Rate Income Fund
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(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
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(Address of principal executive offices) (Zip code)
Lawrence Altadonna - 1345 Avenue of the Americas, New York, New York 10105
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-739-3371
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Date of fiscal year end: July 31
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Date of reporting period: July 31
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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. Section 3507.
Item 1. Report to Shareholder
ANNUAL REPORT
7.31.04
PIMCO FLOATING RATE INCOME FUND
[PFL LISTED NYSE THE NEW YORK STOCK EXCHANGE LOGO]
CONTENTS
Letter to Shareholders 1
Performance Summary and Statistics 2
Schedule of Investments 3-12
Statement of Assets and Liabilities 13
Statement of Operations 14
Statement of Changes in Net Assets 15
Statement of Cash Flows 16
Notes to Financial Statements 17-24
Financial Highlights 25
Report of Independent Registered Public
Accounting Firm 26
Privacy Policy, Proxy Voting, Other Information 27
Dividend Reinvestment Plan 28
Board of Trustees 29
[PIMCO ADVISORS LOGO]
PIMCO FLOATING RATE INCOME FUND LETTER TO SHAREHOLDERS
September 21, 2004
Dear Shareholder:
We are pleased to provide you with the initial annual report of the PIMCO
Floating Rate Income Fund (the "Fund") for the period August 29, 2003
(commencement of operations) through July 31, 2004.
Please refer to the following page for specific Fund information. If you have
any questions regarding the information provided, please contact your financial
advisor or call our shareholder services area at 1-800-331-1710. Please note
that a wide range of information and resources can be accessed through our Web
site, www.pimcoadvisors.com.
Together with PA Fund Management LLC, the Fund's investment manager, and Pacific
Investment Management Company LLC, the Fund's sub-adviser, I thank you for
investing with us. We remain dedicated to serving your investment needs.
Sincerely,
/s/ Brian S. Shlissel
Brian S. Shlissel
PRESIDENT, CHIEF EXECUTIVE OFFICER
PIMCO FLOATING RATE INCOME FUND PERFORMANCE SUMMARY AND STATISTICS
July 31, 2004 (unaudited)
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PFL Floating rate debt instruments, August 29, 2003
substantial portion of which will
OBJECTIVE: be senior floating rate loans. TOTAL NET ASSETS(1):
Seeks high current income, $556.7 million
consistent with the preservation
of capital. PORTFOLIO MANAGERS:
Raymond G. Kennedy
David C. Hinman
Jason R. Rosiak
TOTAL RETURN(2): MARKET PRICE NAV
------------------------------------------------------------------------------------
Commencement of Operations (8/29/03) to 7/31/04 6.55% 4.28%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (8/29/03) to 7/31/04
[CHART]
8/29/2003 $ 19.31 $ 20.00
9/5/2003 $ 19.29 $ 20.01
9/12/2003 $ 19.31 $ 20.15
9/19/2003 $ 19.33 $ 20.29
9/26/2003 $ 19.34 $ 20.04
10/3/2003 $ 19.37 $ 20.01
10/10/2003 $ 19.42 $ 20.03
10/17/2003 $ 19.44 $ 20.02
10/24/2003 $ 19.45 $ 20.22
10/31/2003 $ 19.41 $ 20.03
11/7/2003 $ 19.30 $ 20.16
11/14/2003 $ 19.24 $ 20.10
11/21/2003 $ 19.25 $ 20.08
11/28/2003 $ 19.27 $ 19.98
12/5/2003 $ 19.36 $ 19.62
12/12/2003 $ 19.30 $ 19.40
12/19/2003 $ 19.35 $ 19.42
12/26/2003 $ 19.38 $ 19.58
1/2/2004 $ 19.42 $ 19.84
1/9/2004 $ 19.51 $ 19.61
1/16/2004 $ 19.42 $ 19.76
1/23/2004 $ 19.48 $ 19.75
1/30/2004 $ 19.41 $ 20.10
2/6/2004 $ 19.36 $ 20.18
2/13/2004 $ 19.50 $ 20.05
2/20/2004 $ 19.33 $ 20.15
2/27/2004 $ 19.29 $ 19.95
3/5/2004 $ 19.36 $ 19.97
3/12/2004 $ 19.37 $ 20.02
3/19/2004 $ 19.30 $ 20.15
3/26/2004 $ 19.29 $ 19.88
4/2/2004 $ 19.33 $ 20.00
4/8/2004 $ 19.45 $ 20.05
4/16/2004 $ 19.32 $ 19.98
4/23/2004 $ 19.32 $ 20.04
4/30/2004 $ 19.30 $ 20.20
5/7/2004 $ 19.17 $ 20.17
5/14/2004 $ 19.10 $ 20.20
5/21/2004 $ 19.08 $ 20.13
5/28/2004 $ 19.19 $ 20.20
6/4/2004 $ 19.20 $ 20.17
6/11/2004 $ 19.27 $ 20.35
6/18/2004 $ 19.26 $ 20.29
6/25/2004 $ 19.36 $ 20.60
7/2/2004 $ 19.41 $ 20.50
7/9/2004 $ 19.44 $ 20.60
7/16/2004 $ 19.40 $ 20.62
7/23/2004 $ 19.40 $ 20.46
7/31/2004 $ 19.38 $ 20.47
MARKET PRICE/NET ASSET VALUE:
Market Price $ 20.47
---------------------------------------
Net Asset Value ("NAV") $ 19.38
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Premium to NAV 5.62%
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Market Price Yield(3) 4.87%
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(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) 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
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.
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.
(3) 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 July 31, 2004.
2
PIMCO FLOATING RATE INCOME FUND SCHEDULE OF INVESTMENTS
July 31, 2004
PRINCIPAL
AMOUNT
(000) VALUE
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SENIOR LOANS (a)(c)(g)--59.4%
APPAREL & TEXTILES - 1.4%
$ 2,776 Arteva DBA Kosa, 4.5625%, 4/30/11, Term B $ 2,819,853
1,224 Kosa Canada Co., 4.5625%, 4/30/11, Term B2 1,242,647
4,000 Simmons & Co., 5.125%, 6/19/12, Term C 4,051,668
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8,114,168
============
AUTOMOTIVE - 3.9%
255 Hayes Lemmerz International Inc., 4.91%, 6/3/09, Term B 260,702
881 Hayes Lemmerz International Inc., 4.92%, 6/3/09, Term B 898,971
871 Hayes Lemmerz International Inc., 5.12%, 6/3/09, Term B 888,858
440 Hayes Lemmerz International Inc., 5.22%, 6/3/09, Term B 449,486
881 Hayes Lemmerz International Inc., 5.33%, 6/3/09, Term B 898,971
34 Hayes Lemmerz International Inc., 5.42%, 6/3/09, Term B 34,835
430 Hayes Lemmerz International Inc., 5.73%, 6/3/09, Term B 439,372
1,980 Pacificare Systems Inc., 3.59875%, 6/3/08, Term B 2,014,650
2,000 Plastech Engineered Products, Inc., 5.79%, 2/15/10 Term C 2,032,500
3,088 Tenneco Automotive Inc., 4.10%, 12/30/10, Term B 3,149,047
1,397 Tenneco Automotive Inc., 4.36%, 12/30/10, Term B1 1,425,356
3,990 TRW Automotive Inc., 4.125%, 2/28/11, Term D1 4,064,813
1,000 TRW Automotive Inc., 3.625%, 2/28/09, Term A1 1,018,750
4,256 Volkswagon 3.77%, 4/7/11, Term B 4,341,958
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21,918,269
============
CHEMICALS - 4.8%
2,500 Brenntag AG, 3.8807%, 2/28/12 Term B2 2,541,407
146 Celanese AG, 3.98%, 6/8/11, Term B 148,290
395 Celanese AG, 4.09%, 6/8/11, Term B 401,817
439 Celanese AG, 4.10%, 6/8/11, Term B 446,463
1,149 Cognis BV, 4.593%, 3/31/12, Term B1 1,154,051
1,992 Cognis BV, 5.0933%, 3/31/13, Term C1 2,005,357
1,794 Georgia Gulf Corp., 3.50%, 12/2/10, Term D 1,821,658
1,875 Hercules Inc., 3.475, 10/8/10, Term B 1,889,062
120 Hercules Inc., 3.83625%, 10/8/10, Term B 120,900
1,734 Huntsman ICI Chemicals LLC, 4.6875%, 12/30/10, Term B 1,762,760
444 Kraton Polymers Group., 4.0625%, 12/2/09 Term 451,944
3,423 Kraton Polymers Group., 4.375%, 12/2/09 Term 3,481,105
56 Kraton Polymers Group., 4.50%, 12/2/09 Term 56,493
1,652 Nalco Co., 3.95%, 11/1/10, Term B 1,679,193
2,058 Nalco Co., 4.08%, 11/1/10, Term B 2,092,297
1,270 Nalco Co., 4.43%, 11/1/10, Term B 1,291,687
6,000 Rockwood 3.98%, 6/15/12, Term B 6,054,108
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27,398,592
============
COMPUTER SOFTWARE - 0.3%
2,000 UGS plm Solutions Inc., 4.11%, 5/30/11, Term B 2,021,876
------------
CONSUMER PRODUCTS - 1.1%
1,268 Rayovac Corp., 3.75%, 10/1/09, Term C 1,285,333
1,078 Rayovac Corp., 3.92%, 10/1/09, Term C 1,092,092
911 Rayovac Corp., 4.10%, 10/1/09, Term C 922,740
1,500 Revlon Inc., 7.60%, 7/31/10, Term 1,530,234
1,500 Revlon Inc., 7.86%, 7/31/10, Term 1,530,234
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6,360,633
============
3
PRINCIPAL
AMOUNT
(000) VALUE
-----------------------------------------------------------------------------------------------------------
CONTAINERS - 3.6%
$ 2,850 Crown Cork & Seal Co., Inc., 4.58625%, 8/26/08, Term B $ 2,895,868
3,960 Graphic Packaging International Corp., 4.35%, 8/8/10, Term B 4,008,523
1,500 Owens-Illinois Inc., 4.45%, 4/1/08, Term C 1,504,062
4,250 Owens-Illinois Inc., 4.48%, 4/1/08, Term B 4,315,522
1,563 Solo Cup Co., 3.98%, 2/27/11, Term B 1,583,288
1,429 Solo Cup Co., 4.08625%, 2/27/11, Term B 1,447,866
4,701 Stone Container Corp., 4.00%, 6/30/09-7/26/09, Term B & C 4,753,848
------------
20,508,977
============
DIVERSIFIED MANUFACTURING - 0.7%
3,992 Invensys plc, 5.477%, 9/30/09, Term B1 4,059,051
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ENERGY - 2.3%
1,990 Calpine Construction, 7.50%, 8/13/09 2,124,325
2,500 Dynegy Holdings, Inc., 5.36%, 5/10/10 Term 2,549,220
1,760 NRG Energy Inc., 5.50%, 12/23/10 (j) 1,824,976
3,118 NRG Energy Inc., 5.50%, 5/8/10, Term B 3,233,984
1,500 Parker Drilling Co., 5.72%, 10/10/07, Term B 1,503,047
1,500 Parker Drilling Co., 7.50%, 10/10/07, Term B 1,508,437
------------
12,743,989
============
ENTERTAINMENT - 0.8%
1,125 Warner Music Group Inc., 4.025%, 2/27/11, Term B 1,142,678
1,125 Warner Music Group Inc., 4.03%, 2/27/11, Term B 1,142,678
2,239 Warner Music Group Inc., 4.31875%, 2/27/11, Term B 2,273,930
------------
4,559,286
============
FINANCIAL SERVICES - 2.8%
1,000 Atlantic Broadcast 4.61%, 7/30/11, Term B 1,016,094
400 Celenese AG, 4.10%, 6/8/11, Term B 406,917
1,500 Celenese AG, 5.73%, 6/8/11, Term C 1,550,625
7,833 Nextel Finance Corp., 3.8125%, 12/15/10, Term E 7,895,944
2,500 Nextel Finance Corp., 4.00%, 3/15/11, Term C 2,543,437
2,500 Refco Group Ltd., 4.23%, 7/30/11, Term B 2,503,125
------------
15,916,142
============
FOOD & BEVERAGE - 1.3%
3,500 Consolidated Communications, Inc. 4.00813%, 9/18/11 Term B 3,566,721
1,000 Consolidated Communications, Inc. 4.33625%, 9/18/11 Term B 1,019,063
2,501 Merisant Co., 4.43%, 12/17/09 Term B 2,514,480
------------
7,100,264
============
FOOD SERVICES - 1.2%
501 Del Monte Foods Co., 3.83625%, 9/30/08, Term B 509,265
1,948 Del Monte Foods Co., 3.93%, 12/20/10, Term B 1,978,393
4,000 Michaels Foods, Inc., 5.21375% 11/30/11, Term C 4,117,500
------------
6,605,158
============
FUNERAL SERVICES - 0.3%
460 Alderwoods Group Inc., 4.10%, 9/30/08 Term B 467,131
1,090 Alderwoods Group Inc., 4.20%, 9/30/08 Term B 1,108,636
------------
1,575,767
============
4
PRINCIPAL
AMOUNT
(000) VALUE
-----------------------------------------------------------------------------------------------------------
HEALTH & HOSPITALS - 2.5%
$ 617 Apria Healthcare Group Inc., 3.48%, 7/20/07, Term B $ 624,669
879 Apria Healthcare Group Inc., 3.59%, 7/20/07, Term B 890,000
74 Beverly Enterprises Inc., 4.09%, 10/30/08, Term B 74,997
1,393 Beverly Enterprises Inc., 4.43%, 10/30/08, Term B 1,413,481
519 Beverly Enterprises Inc., 3.82%, 10/30/08, Term B 526,296
1,985 Community Health Systems Inc., 3.80%, 7/16/10, Term B 1,990,120
1,853 Davita, Inc. 3.16%, 6/23/09, Term B1 1,874,381
1,103 Davita, Inc. 3.27%, 6/23/09, Term B1 1,115,902
1,853 Davita, Inc. 3.58625%, 6/23/09, Term B1 1,874,381
1,103 Davita, Inc. 3.60%, 6/23/09, Term B1 1,115,902
1,853 Davita, Inc. 3.87%, 6/23/09, Term B1 1,874,381
654 Davita, Inc. 3.98%, 6/23/09, Term B1 661.276
------------
14,035,786
============
HOTELS/GAMING - 1.4%
1,496 Argosy Gaming Co., 3.84%, 7/31/08 Term 1,513,444
3,250 MGM Mirage, Inc., 2.83125%, 11/30/08 Term TL 3,256,601
3,250 MGM Mirage, Inc., 2.835%, 11/30/08 Term TL 3,256,601
------------
8,026,646
============
HOUSEHOLD PRODUCTS - 0.7%
1,000 Springer S.A., 4.33735%, 9/16/11 Term B2 988,298
2,800 Springer S.A., 4.83735%, 9/16/12 Term C2 2,774,795
------------
3,763,093
============
LEASING - 0.4%
333 United Rentals, Inc., 2.25%, 2/15/11, Term LC 339,498
610 United Rentals, Inc., 3.44%, 2/15/11, Term B 621,422
610 United Rentals, Inc., 3.51%, 2/15/11, Term B 621,422
439 United Rentals, Inc., 3.71%, 2/15/11, Term B 447,706
------------
2,030,048
============
MACHINERY - 0.8%
416 Agco Corp., 3.83625%, 6/15/09, Term B 424,055
1,892 Agco Corp., 3.84%, 6/15/09, Term B 1,927,135
215 Flowserve Corp., 4.0625%, 6/30/09, Term C 217,924
372 Flowserve Corp., 4.1875%, 6/30/09, Term C 376,889
1,289 Flowserve Corp., 4.25%, 6/30/09, Term C 1,307,542
95 Flowserve Corp., 4.375%, 6/30/09, Term C 95,886
------------
4,349,431
============
MANUFACTURING - 1.8%
5,174 Cinram International, Inc. 5.09%, 10/10/09, Term B 5,262,592
2,783 Roper Industries, Inc., 3.59%, 12/26/08, Term B 2,824,422
1,117 Roper Industries, Inc., 3.66%, 12/26/08, Term B 1,134,078
981 SPX Corp., 3.625%, 9/30/09, Term B1 996,654
124 SPX Corp., 5.25%, 9/30/09, Term B1 126,713
------------
10,344,459
============
MEASURING INSTRUMENTS - 0.7%
4,000 Dresser Inc. 4.68%, 2/18/10 Term 4,084,000
------------
MULTI-MEDIA - 5.2%
4,206 Canwest Media Inc., 3.66%, 8/15/09, Term E 4,266,877
2,000 Charter Communications Holdings, LLC, 4.67%, 4/26/10 Term A 1,975,376
6,471 Charter Communications Holdings, LLC, 4.92%, 4/26/11 Term B 6,391,197
5
PRINCIPAL
AMOUNT
(000) VALUE
-----------------------------------------------------------------------------------------------------------
MULTI-MEDIA (CONTINUED)
$ 1,633 DirectTV Holdings LLC, 3.45%, 3/6/10, Term B2 $ 1,657,143
1,671 DirectTV Holdings LLC, 3.76%, 3/6/10, Term B2 1,696,086
6,965 Insight Midwest Holdings LLC., 3.9375%, 12/31/09, Term B 7,078,662
1,440 MediaCom Broadband LLC, 3.87%, 9/30/10, Term B 1,456,988
60 MediaCom Broadband LLC, 3.97%, 9/30/10, Term B 60,708
1,500 MediaCom Broadband LLC, 4.17%, 9/30/10, Term B 1,517,695
1,625 Primedia Inc., 4.25%, 3/2/09, Term B 1,563,529
1,500 Primedia Inc., 5.8125%, 11/10/09, Term C 1,486,875
83 Univision Communications, Inc. 2.62%, 7/18/06, Term PR 83,229
194 Univision Communications, Inc. 2.77%, 7/18/06, Term PR 194,444
------------
29,428,809
============
OFFICE EQUIPMENT - 1.1%
6,000 Xerox Corp., 3.34%, 9/30/08, Term B 6,036,876
------------
OIL & GAS - 0.7%
4,000 Aquila, Inc. 8.00%, 5/15/06, Term Loan 4,131,668
------------
PAPER PRODUCTS - 1.3%
1,250 Appleton Papers Inc., 3.66%, 6/9/10, Term 1,266,601
1,250 Appleton Papers Inc., 3.79%, 6/9/10, Term 1,266,601
367 Buckeye Technologies Inc., 3.61%, 11/4/10, Term B 371,785
2,750 Buckeye Technologies Inc., 3.68%, 11/4/10, Term B 2,788,384
623 Buckeye Technologies Inc., 4.08%, 11/4/10, Term B 632,034
908 Buckeye Technologies Inc., 4.09%, 11/4/10, Term B 920,167
202 Buckeye Technologies Inc., 4.34%, 11/4/10, Term B 204,482
------------
7,450,054
============
PIPELINES - 0.7%
3,729 Kinetics Concepts 3.59%, 7/14/10 Term B 3,782,136
------------
PRINTING/PUBLISHING - 0.6%
169 Houghton Mifflin Co., 4.64%, 3/5/09 Revolver 164,048
127 Houghton Mifflin Co., 4.77%, 3/5/09 Revolver 123,036
59 Houghton Mifflin Co., 4.64%, 3/5/09 Revolver 57,417
169 Houghton Mifflin Co., 6.50%, 3/5/09 Revolver 164,048
728 RH Donnelley Corp., 3.63%, 6/30/10, Term B 737,230
162 RH Donnelley Corp., 3.80%, 6/30/10, Term B 163,888
162 RH Donnelley Corp., 3.81%, 6/30/10, Term B 163,888
1,758 RH Donnelley Corp., 3.84%, 6/30/10, Term B 1,780,299
162 RH Donnelley Corp., 3.86%, 6/30/10, Term B 163,853
------------
3,517,707
============
RECREATION - 0.3%
1,811 Six Flags Theme Parks Inc., 3.87%, 6/30/09, Term B 1,833,521
------------
SPECIAL PURPOSE ENTITY - 0.4%
1,975 Global Cash Access, 4.23%, 3/15/10, Term B 2,008,328
------------
TELECOMMUNICATIONS - 7.1%
5,436 Crown Castle International Corp., 5.09%, 9/30/10, Term B 5,459,491
3,667 Centennial Cellular Communications, 3.91%, 1/20/11 Term B 3,689,257
157 Centennial Cellular Communications, 4.05%, 1/20/11 Term B 157,632
167 Centennial Cellular Communications, 4.33813%, 1/20/11 Term B 167,694
1,283 Cincinnati Bell Inc., 3.90% 11/30/08, Term D 1,298,734
1,524 Cincinnati Bell Inc., 3.91% 11/30/08, Term D 1,542,095
762 Cincinnati Bell Inc., 4.01% 11/30/08, Term D 771,048
21 Cincinnati Bell Inc., 4.08% 11/30/08, Term D 21,209
6
PRINCIPAL
AMOUNT
(000) VALUE
-----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
$ 351 Dex Media East LLC, 3.30%, 11/8/08, Term A $ 355,641
1,393 Dex Media East LLC, 3.30%, 5/8/09, Term B 1,416,485
462 Dex Media East LLC, 3.36%, 5/28/09-11/8/08 Term A & B 468,131
295 Dex Media East LLC, 3.48%, 11/8/08, Term A 298,655
207 Dex Media East LLC, 3.37%, 11/8/08, Term A 209,935
154 Dex Media East LLC, 3.37%, 5/8/09, Term B 156,526
374 Dex Media East LLC, 3.41%, 5/8/09-11/8/08, Term A & B 379,254
482 Dex Media East LLC, 3.45%, 5/8/09-11/8/08, Term A & B 489,271
279 Dex Media East LLC, 3.48%, 5/8/09, Term B 284,495
281 Dex Media East LLC, 3.59%, 11/8/08, Term A 284,513
258 Dex Media East LLC, 3.59%, 5/8/09, Term B 261,237
231 Dex Media West LLC, 3.36%, 9/9/09, Term A 233,823
202 Dex Media West LLC, 3.37%, 9/9/09, Term A 204,725
166 Dex Media West LLC, 3.41%, 9/9/09, Term A 167,833
489 Dex Media West LLC, 3.45%, 9/9/09, Term A 496,483
290 Dex Media West LLC, 3.48%, 9/9/09, Term A 294,617
138 Dex Media West LLC, 3.54%, 9/9/09, Term A 140,294
168 Dex Media West LLC, 3.58%, 9/9/09, Term A 170,171
288 Dex Media West LLC, 3.59%, 9/9/09, Term A 291,828
500 Dex Media West LLC, 3.61%, 9/9/10, Term B 509,948
415 Dex Media West LLC, 3.62%, 9/9/10, Term B 423,067
337 Dex Media West LLC, 3.66%, 9/9/10, Term B 343,743
872 Dex Media West LLC, 3.70%, 9/9/10, Term B 889,576
517 Dex Media West LLC, 3.73%, 9/9/10, Term B 526,946
200 Dex Media West LLC, 3.79%, 9/9/10, Term B 203,979
207 Dex Media West LLC, 3.83%, 9/9/10, Term B 211,534
517 Dex Media West LLC, 3.84%, 9/9/10, Term B 526,946
1,628 Dobson Cellular Systems, Inc. 4.91%, 3/15/10 Term B 1,633,535
1,348 Dobson Cellular Systems, Inc. 4.92%, 3/15/10 Term B 1,352,496
2,500 Inmarsat., 4.5611%, 10/10/10, Term B 2,528,125
2,500 Inmarsat Ventures PLC., 5.0611%, 10/10/11, Term C 2,528,125
4,000 Qwest Corp., 6.50%, 6/30/07 Term A 4,156,252
2,949 Western Wireless Corp., 4.37%, 5/30/11, Term B 2,994,529
513 Western Wireless Corp., 4.63%, 5/30/11, Term B 520,787
1,026 Western Wireless Corp., 4.60%, 5/30/11, Term B 1,041,575
513 Western Wireless Corp., 4.67%, 5/30/11, Term B 520,789
------------
40,623,029
============
TOBACCO - 0.4%
2,324 Commonwealth Brands, Inc. 5.5625%, 8/28/07 Term B 2,364,702
------------
TRANSPORTATION - 1.0%
5,473 Bombardier Inc., 4.18%, 12/17/10-12/18/10 5,543,130
------------
UTILITIES - 5.1%
1,571 AES Corp, 5.32%, 7/29/08 Term B 1,593,878
2,333 Allegheny Energy Inc., 4.18%, 3/8/11 Term B 2,371,833
160 Allegheny Energy Inc., 4.58%, 3/8/11 Term B 163,064
150 Allegheny Energy Inc., 5.43%, 6/8/11 Term C 152,953
1,320 Allegheny Energy Inc., 5.64%, 6/8/11 Term C 1,345,988
26 Allegheny Energy Inc., 5.83%, 6/8/11 Term C 26,767
985 DS Waters 4.33625%, 11/15/09, Term B 972,987
7
PRINCIPAL
AMOUNT
(000) VALUE
-----------------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
$ 438 DS Waters 4.62%, 11/15/09, Term B $ 432,439
2,000 Midwest Generation LLC, 4.57%, 4/27/11 Term B 2,028,750
1,000 Midwest Generation LLC, 4.73%, 4/27/11 Term B 1,014,375
990 Midwest Generation LLC, 4.85%, 4/27/11 Term B 1,004,231
9,000 Mission Energy Holdings International Inc., 7.00%,
11/19/06, Term B 9,045,000
5,348 Reliant Resources Inc., 5.35%, 3/15/07 Term W/WTS 5,347,521
1,054 Reliant Resources Inc., 5.88%, 3/15/07 Term W/WTS 1,053,530
2,000 Tucson Electric Power, 1.48625%, 3/30/09, Term B 2,021,250
------------
28,574,566
============
WASTE DISPOSAL - 2.0%
3,823 Allied Waste North America, 4.27%, 4/30/10, Term B 3,879,025
2,963 Allied Waste North America, 3.93%, 4/30/10, Term B 3,006,245
1,434 Allied Waste North America, 3.94%, 4/30/10, Term B 1,454,635
717 Allied Waste North America, 4.22%, 4/30/10, Term B 727,317
2,389 Allied Waste North America, 4.27%, 4/30/10, Term B 2,424,390
------------
11,491,612
============
WHOLESALE - 0.7%
2,522 Roundy's Inc., 3.15%, 6/6/09, Term B1 2,547,573
1,649 Roundy's Inc., 3.37%, 6/6/09, Term B1 1,666,134
------------
4,213,707
============
Total Senior Loans (cost-$324,250,392) 336,515,480
============
CREDIT RATING
(MOODY'S/S&P)*
ASSET-BACKED SECURITES--5.7%
3,000 Ameriquest Mortgage Securities Inc., 1.47125%, 8/25/34 (d) (f) Aaa/AAA 3,001,522
3,000 Ameriquest Mortgage Securities Inc., 1.58%, 9/25/34 (f) Aaa/AAA 2,996,309
3,000 C Bass Trust, 1.60%, 8/25/34 Ser. 2004 (d) (f) Aaa/AAA 2,996,777
2,710 CDC Mortgage Capital Trust, 1.80%, 10/25/33 (f) Aaa/AAA 2,716,698
2,590 Chase Funding Mortgage Loan 1.57%, 2/25/21 (f) Aaa/AAA 2,592,516
3,000 Chec Loan Trust, 1.59%, 7/25/34 (d) (e) (f) Aaa/AAA 2,997,012
2,440 Citifinancial Mortgage Securities Inc., 1.75%, 1/25/33 (f) Aaa/AAA 2,444,725
2,064 FC CBO, 1.98%, 6/3/09 Ser. 1A (e) (f) Ba2/BB- 1,968,534
1,477 First Franklin Mortgage Loan, 1.57%, 7/25/33 (f) NR/AAA 1,478,066
2,863 GS Mortgage Securities Corp., 1.74%, 3/25/34 (f) Aaa/AAA 2,864,247
2,561 Isles CBO, 2.07%, 10/27/10 Ser. 1 (d) (e) (f) Ba2/NR 2,277,468
1,056 Jade CBO Ltd., 7.67%, 10/24/11 (d) (e) B2/NR 831,413
2,666 Long Beach Mortgage Loan Trust 1.77%, 6/25/33 (f) Aaa/AAA 2,670,790
415 Merrill Lynch CBO, 1.63%, 11/7/06 Ser. 1A (d) (e) (f) B1/CC 190,361
------------
Total Asset-Backed Securities (cost-$34,948,058) 32,026,438
============
CORPORATE BONDS & NOTES--15.3%
AIRLINES - 0.2%
1,334 Delta Air Lines, Inc., pass thru certificates, 7.379%, 5/18/10 Ba1/BBB- 1,259,672
------------
AUTOMOTIVE - 0.3%
2,000 Dura Operating Corp., 8.625%, 4/15/12 Ser. B B1/B+ 1,990,000
------------
BUILDING/CONSTRUCTION - 0.1%
500 North American Energy Partners 8.75%, 12/1/11 (e) B2/B+ 495,000
------------
CHEMICALS - 0.3%
1,500 Arco Chemical Co., 9.375%, 12/15/05 B1/B+ 1,552,500
------------
8
PRINCIPAL
AMOUNT CREDIT RATING
(000) (MOODY'S/S&P)* VALUE
-----------------------------------------------------------------------------------------------------------
ELECTRONICS - 0.5%
$ 2,500 PPL Capital Fund Trust I, 7.29%, 5/18/06 Ba1/BB+ $ 2,623,425
------------
ENERGY - 1.7%
1,238 Calpine Corp., 7.35%, 7/15/07 (e) (f) NR/B 1,067,344
2,000 CMS Energy Corp., 7.75%, 8/1/10 (e) B3/B+ 2,055,000
2,500 Dynegy Holdings, Inc., 8.10%, 7/15/08 (e) (f) B3/B- 2,696,875
4,000 NRG Energy Inc., 8.00%, 12/15/13 (e) B2/B+ 4,110,000
------------
9,929,219
============
FINANCIAL SERVICES - 1.1%
3,000 Redwood Capital II Ltd., 3.90%, 1/9/06 (e) (f) (g) Baa3/BBB- 3,023,520
3,000 Redwood Capital II Ltd., 5.45%, 1/9/06 (e) (f) (g) Ba1/BB+ 3,027,270
------------
6,050,790
============
FORESTRY - 0.4%
2,000 GP Canada Finance Co., 7.20%, 12/15/06 (e) Ba3/BB+ 2,065,000
------------
HOTELS/GAMING - 1.1%
1,000 Boyd Gaming Corp., 7.75%, 12/15/12 B1/B+ 1,035,000
3,000 La Qunita Corp., 7.40%, 9/15/05 Ba3/BB- 3,120,000
2,000 Mandalay Resort Group, 7.625%, 7/15/13 Ba3/BB- 2,017,500
------------
6,172,500
============
INSURANCE - 0.6%
1,500 Parametric Re Ltd., 5.85%, 5/19/08 (e) (f) (g) Ba2/NR 1,572,675
2,000 Residential Reinsurance Ltd., 6.26%, 12/8/07 (d) (e) (f) (g) Ba2/BB+ 2,007,709
------------
3,580,384
============
MANUFACTURING - 0.2%
1,000 Superior Essex Inc., 9.00%, 4/15/12 (e) B3/B 1,000,000
------------
MULTI-MEDIA - 1.6%
3,000 Cablevision Systems Corp., 5.67%, 4/1/09 (e) (f) B3/B+ 3,060,000
2,000 Cablevision Systems Corp., 8.00%, 4/15/12 (e) B3/B+ 1,975,000
1,000 Primedia Inc., 6.20%, 5/15/10 (e) (f) B3/B 1,021,250
3,000 Time Warner Telecommunications Inc., 5.25%, 2/15/11 (e) (f) B1/B 2,910,000
------------
8,966,250
============
OIL & GAS - 0.0%
--(k) Pride International Inc., 9.375%, 5/1/07 Ba2/BB- 264
------------
PAPER - 0.3%
2,000 Abitibi-Consolidated Inc., 5.25% 6/20/08 Ba2/BB 1,910,000
------------
RETAIL - 0.4%
2,000 Toys "R" Us Inc., 7.625%, 8/1/11 Ba2/BB 2,050,000
------------
SEMI-CONDUCTORS - 0.4%
2,000 Freescale Semiconductor Inc., 4.38%, 7/15/09 (e) (f) Ba2/BB+ 2,057,500
------------
SPECIAL PURPOSE ENTITY - 0.5%
3,000 Pioneer 2002 Ltd., 2002-3 6.77%, 6/15/06 (d) (e) (f) (g) Ba3/BB+ 3,020,564
------------
TELECOMMUNICATIONS - 4.8%
2,000 Cincinnati Bell Inc., 8.375%, 1/15/14 B3/B- 1,770,000
5,665 Echostar DBS Corp., 4.85%, 10/1/08 (f) Ba3/BB- 5,919,925
16,000 Qwest Communications International Inc., 4.75%, 2/15/09 (e) (f) B3/B 15,360,000
2,000 Rural Cellular Corp., 6.02%, 3/15/10 (e) (f) B2/B- 2,065,000
2,000 Rural Cellular Corp., 8.25%, 3/15/12 (e) B2/B- 2,060,000
------------
27,174,925
============
9
PRINCIPAL
AMOUNT CREDIT RATING
(000) (MOODY'S/S&P)* VALUE
-----------------------------------------------------------------------------------------------------------
TOBACCO - 0.8%
$ 1,000 Commonwealth Brands, Inc. 8.735%, 4/15/08 (e) (f) NR/B- $ 1,045,000
2,500 Dimon Corp., 7.75%, 6/1/13 Ba3/BB 2,362,500
1,500 North Atlantic Trading Co., 9.25%, 3/1/12 (e) B2/B+ 1,477,500
------------
4,885,000
============
Total Corporate Bonds & Notes (cost-$97,045,175) 86,782,993
============
SOVEREIGN DEBT OBLIGATIONS (f)--2.1%
BRAZIL - 2.1%
13,494 Federal Republic of Brazil, 2.125%, 4/15/09-4/15/12
(cost-$12,188,866) B2/B+ 11,922,977
------------
PREFERRED STOCK (a) (e) (f) (g)--0.6%
SHARES
30 Richmond County Cap. Corp., 4.85%, 7/15/08 (cost-$3,068,307) NR/NR 3,045,000
------------
PRINCIPAL
AMOUNT
(000)
SHORT-TERM INVESTMENTS--16.9%
COMMERCIAL PAPER - 12.5%
BANKING - 4.7%
$ 15,200 Bank of Ireland, 1.28%-1.285%, 9/3/04-9/8/04 (e) Aa3/NR 15,181,922
11,600 Royal Bank of Scotland plc., 1.09%-1.135%, 8/6/04-9/1/04 NR/NR 11,592,961
------------
26,774,883
============
DRUGS & MEDICAL PRODUCTS - 0.7%
4,200 Pfizer, Inc. 1.30%, 8/18/04 Aaa/AAA 4,197,422
------------
FINANCING - 5.0%
13,500 CDC Commercial Paper Corp., 1.32%-1.67%, 9/10/04-12/10/04 NR/NR 13,435,122
7,100 HBOS Treasury Services plc, 1.150%-1.335%, 9/3/04-9/9/04 Aa2/AA 7,089,967
7,800 UBS Finance, Inc. 1.245%-1.27%, 9/10/04-9/23/04 Aa2/NR 7,786,866
------------
28,311,955
============
HOTELS/GAMING - 0.3%
1,430 MGM Mirage Inc., 6.625%, 2/1/05 Ba1/BB+ 1,462,175
------------
MISCELLANEOUS - 1.8%
10,200 Danske Corp. Ser. A., 1.26%-1.58%, 9-14-04-10/29/04 NR/NR 10,161,200
------------
Total Commercial Paper (cost-$66,711,718) 70,907,635
============
CORPORATE NOTES--2.6%
ENERGY - 0.5%
2,500 CMS Energy Corp., 7.625%, 11/15/04 B3/B+ 2,543,750
------------
MISCELLANEOUS - 0.5%
3,000 Gemstone Investors Ltd., 7.71%, 10/31/04 (e) Caa1/CCC+ 3,037,500
------------
OIL & GAS - 0.3%
1,700 TotalFinaElf SA, 1.31%, 8/2/04 A1+/NR 1,699,938
------------
10
PRINCIPAL
AMOUNT CREDIT RATING
(000) (MOODY'S/S&P)* VALUE
------------------------------------------------------------------------------------------------------------
PAPER - 0.4%
$ 2,000 Abitibi-Consolidated Inc., 8.30% 8/1/05 Ba2/BB $ 2,090,000
-------------
TELECOMMUNICATIONS - 0.5%
3,000 USWest Communications, 7.20%, 11/1/04 Ba3/BB- 3,045,000
-------------
UTILITIES - 0.4%
2,500 Edison International, 6.875%, 9/15/04 Ba2/BB+ 2,512,500
-------------
Total Corporate Notes (cost-$14,806,721) 14,928,688
=============
U.S. GOVERNMENT & AGENCY SECURITIES - 1.1%
FEDERAL HOME LOAN BANK - 0.1%
400 1.175%, 8/25/04 Aaa/AAA 399,635
-------------
U.S. TREASURY BILLS (i) - 1.0%
5,710 1.142%-1.325%, 9/2/04-9/16/04 Aaa/AAA 5,700,930
-------------
Total U.S. Government & Agency Securities (cost-$6,100,565) 6,100,565
=============
REPURCHASE AGREEMENT - 0.7%
4,096 State Street Bank & Trust Co.
dated 7/30/04, 0.90%, due 8/2/04,
proceeds: $4,096,307; collateralized by Fannie Mae, 1.875%
1/15/05, valued at $4,182,613 (cost-$4,096,000) 4,096,000
-------------
Total Short-Term Investments (cost-$91,715,004) 96,032,888
=============
PUT OPTIONS PURCHASED (h) - 0.0%
Contracts
246 CME euro Futures, Chicago Board of Trade
strike price $94.75, expires 12/13/04 (premiums paid-$2,460) 1,538
-------------
TOTAL INVESTMENTS (cost-$563,218,262+) - 100.0% $ 566,327,314
=============
11
NOTES TO SCHEDULE OF INVESTMENTS:
* Unaudited.
+ The cost basis of portfolio securities for federal income tax purposes is
$563,229,804. Aggregate gross unrealized appreciation for securities in
which there is an excess of value over tax cost is $4,875,731; aggregate
gross unrealized depreciation for securities in which there is an excess of
tax cost over value is $1,778,221; net unrealized appreciation for federal
income tax purposes is $3,097,510.
(a) Private Placement. Restricted as to resale and may not have a readily
available market.
(b) Remaining maturities of floating rate 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.
(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 London Inter-Bank Offer Rate
("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.
(d) Fair-valued security.
(e) 144A security--Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, typically to qualified institutional investors.
(f) Floating Rate Security. Interest rate shown is the rate in effect at July
31, 2004.
(g) Illiquid security
(h) Non-income producing security.
(i) All or partial principal amount segregated as initial margin on futures
contracts.
(j) Credit-linked trust certificate.
(k) Represents less than $500.
GLOSSARY:
ADR - American Depositary Receipt
CBO - Collateralized Bond Obligation
NR - Not Rated
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
PIMCO FLOATING RATE INCOME FUND STATEMENT OF ASSETS AND LIABILITIES
July 31, 2004
ASSETS:
Investments, at value (cost-$563,218,262) $ 566,327,314
------------------------------------------------------------------------------------------ -------------
Cash (including foreign currency of $1,437,377 with a cost of $1,477,099) 4,536,788
------------------------------------------------------------------------------------------ -------------
Receivable for investments sold 13,002,829
------------------------------------------------------------------------------------------ -------------
Interest receivable 3,187,826
------------------------------------------------------------------------------------------ -------------
Premium for swaps purchased 925,000
------------------------------------------------------------------------------------------ -------------
Unrealized appreciation on swaps 573,819
------------------------------------------------------------------------------------------ -------------
Receivable from swap counterparty 374,250
------------------------------------------------------------------------------------------ -------------
Periodic payments receivable on swaps 287,610
------------------------------------------------------------------------------------------ -------------
Receivable for variation margin on futures contracts 119,731
------------------------------------------------------------------------------------------ -------------
Prepaid expenses 32,454
------------------------------------------------------------------------------------------ -------------
Total Assets 589,367,621
========================================================================================== =============
LIABILITIES:
Payable for investments purchased 28,724,879
------------------------------------------------------------------------------------------ -------------
Dividends payable to common and preferred shareholders 1,513,590
------------------------------------------------------------------------------------------ -------------
Unrealized depreciation on swaps 722,730
------------------------------------------------------------------------------------------ -------------
Investment management fee payable 354,912
------------------------------------------------------------------------------------------ -------------
Deferred facility fees 353,925
------------------------------------------------------------------------------------------ -------------
Premium for swaps sold 534,008
------------------------------------------------------------------------------------------ -------------
Unrealized depreciation on unfunded loan commitments 150,965
------------------------------------------------------------------------------------------ -------------
Unrealized depreciation on forward foreign currency contracts 118,083
------------------------------------------------------------------------------------------ -------------
Accrued expenses 145,570
------------------------------------------------------------------------------------------ -------------
Total Liabilities 32,618,662
------------------------------------------------------------------------------------------ -------------
PREFERRED SHARES ($0.00001 PAR VALUE AND $25,000 NET ASSET AND LIQUIDATION VALUE PER
SHARE APPLICABLE TO AN AGGREGATE OF 8,400 SHARES ISSUED AND OUTSTANDING) 210,000,000
------------------------------------------------------------------------------------------ -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 346,748,959
========================================================================================== =============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common stock:
Par value ($0.00001 per share, applicable to 17,893,774 shares issued and outstanding) $ 179
------------------------------------------------------------------------------------------ -------------
Paid-in-capital in excess of par 342,946,588
------------------------------------------------------------------------------------------ -------------
Dividends in excess of net investment income (667,789)
------------------------------------------------------------------------------------------ -------------
Net realized gain 2,266,798
------------------------------------------------------------------------------------------ -------------
Net unrealized appreciation of investments, swaps, futures contracts,
and foreign currency transactions 2,203,183
------------------------------------------------------------------------------------------ -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 346,748,959
------------------------------------------------------------------------------------------ -------------
NET ASSET VALUE PER COMMON SHARE $ 19.38
========================================================================================== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
STATEMENT OF OPERATIONS
For the period August 29, 2003* through July 31, 2004
INTEREST INCOME:
Interest $ 16,236,526
------------------------------------------------------------------------------------------ -------------
Dividends 66,442
------------------------------------------------------------------------------------------ -------------
Facility and other fee income 774,085
------------------------------------------------------------------------------------------ -------------
17,077,053
------------------------------------------------------------------------------------------ -------------
EXPENSES:
Investment management fees 3,514,119
------------------------------------------------------------------------------------------ -------------
Auction agent fees and commissions 388,423
------------------------------------------------------------------------------------------ -------------
Custodian and accounting agent fees 145,760
------------------------------------------------------------------------------------------ -------------
Audit and tax services 99,625
------------------------------------------------------------------------------------------ -------------
Reports to shareholders 68,925
------------------------------------------------------------------------------------------ -------------
Trustees' fees and expenses 24,363
------------------------------------------------------------------------------------------ -------------
Transfer agent fees 23,690
------------------------------------------------------------------------------------------ -------------
Legal fees 21,715
------------------------------------------------------------------------------------------ -------------
New York Stock Exchange listing fees 20,722
------------------------------------------------------------------------------------------ -------------
Investor relations 4,838
------------------------------------------------------------------------------------------ -------------
Miscellaneous 5,912
------------------------------------------------------------------------------------------ -------------
Total expenses 4,318,092
------------------------------------------------------------------------------------------ -------------
Less: custody credits earned on cash balances (12,698)
------------------------------------------------------------------------------------------ -------------
Net expenses 4,305,394
------------------------------------------------------------------------------------------ -------------
NET INVESTMENT INCOME 12,771,659
========================================================================================== =============
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
------------------------------------------------------------------------------------------ -------------
Investments 2,700,106
------------------------------------------------------------------------------------------ -------------
Swaps 2,212,604
------------------------------------------------------------------------------------------ -------------
Foreign currency transactions (211,786)
------------------------------------------------------------------------------------------ -------------
Net unrealized appreciation (depreciation) of:
------------------------------------------------------------------------------------------ -------------
Investments 3,109,052
------------------------------------------------------------------------------------------ -------------
Swaps (148,911)
------------------------------------------------------------------------------------------ -------------
Futures contracts (448,188)
------------------------------------------------------------------------------------------ -------------
Unfunded loan commitments (150,965)
------------------------------------------------------------------------------------------ -------------
Foreign currency transactions (157,805)
------------------------------------------------------------------------------------------ -------------
Net realized and unrealized gain on investments, swaps, options, futures contracts,
and foreign currency transactions 6,904,107
------------------------------------------------------------------------------------------ -------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS 19,675,766
========================================================================================== =============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (1,959,556)
------------------------------------------------------------------------------------------ -------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $ 17,716,210
========================================================================================== =============
* Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
FOR THE PERIOD
AUGUST 29, 2003*
THROUGH
JULY 31, 2004
---------------
INVESTMENT OPERATIONS:
Net investment income $ 12,771,659
------------------------------------------------------------------------------------------ -------------
Net realized gain on investments, swaps, futures contracts and foreign currency
transactions 4,700,924
------------------------------------------------------------------------------------------ -------------
Net unrealized appreciation of investments, swaps, futures contracts,
and foreign currency transactions 2,203,183
------------------------------------------------------------------------------------------ -------------
Net increase in net assets resulting from investment operations 19,675,766
========================================================================================== =============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (1,959,556)
------------------------------------------------------------------------------------------ -------------
Net increase in net assets applicable to common shareholders resulting from
investment operations 17,716,210
------------------------------------------------------------------------------------------ -------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM NET INVESTMENT INCOME (13,914,018)
------------------------------------------------------------------------------------------ -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock 343,462,500
------------------------------------------------------------------------------------------ -------------
Preferred shares underwriting discount charged to paid-in capital in excess of
par (2,100,000)
------------------------------------------------------------------------------------------ -------------
Common stock and preferred shares offering costs charged to
paid-in capital in excess of par (1,193,503)
------------------------------------------------------------------------------------------ -------------
Reinvestment of dividends 2,677,769
------------------------------------------------------------------------------------------ -------------
Net increase in capital share transactions 342,846,766
------------------------------------------------------------------------------------------ -------------
Total increase in net assets applicable to common shareholders 346,648,958
========================================================================================== =============
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 100,001
------------------------------------------------------------------------------------------ -------------
End of period (including dividends in excess of net investment income of $667,789) $ 346,748,959
========================================================================================== =============
COMMON SHARES ISSUED AND REINVESTED:
Issued 17,750,000
------------------------------------------------------------------------------------------ -------------
Issued in reinvestment of dividends 138,606
------------------------------------------------------------------------------------------ -------------
NET INCREASE 17,888,606
========================================================================================== =============
* Commencement of operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
STATEMENT OF CASH FLOWS
For the period August 29, 2003* through July 31, 2004
CASH FLOWS USED FOR OPERATING ACTIVITIES:
Purchases of long-term investments $ (814,956,218)
----------------------------------------------------------------------------------------- --------------
Proceeds from sales of long-term investments 351,334,428
----------------------------------------------------------------------------------------- --------------
Interest, dividends and facility fee income received 13,231,028
----------------------------------------------------------------------------------------- --------------
Swap premium paid (925,000)
----------------------------------------------------------------------------------------- --------------
Swap premium sold 159,758
----------------------------------------------------------------------------------------- --------------
Realized net gain on swaps 1,924,994
----------------------------------------------------------------------------------------- --------------
Prepaid expenses (32,454)
----------------------------------------------------------------------------------------- --------------
Operating expenses paid (3,804,912)
----------------------------------------------------------------------------------------- --------------
Variation margin paid (567,919)
----------------------------------------------------------------------------------------- --------------
Net increase in short-term investments (80,162,192)
----------------------------------------------------------------------------------------- --------------
Realized net gain/loss on foreign currency transactions (251,508)
----------------------------------------------------------------------------------------- --------------
NET CASH USED FOR OPERATING ACTIVITIES (534,049,995)
========================================================================================= ==============
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common shares sold 343,462,500
----------------------------------------------------------------------------------------- --------------
Issuance of preferred shares 210,000,000
----------------------------------------------------------------------------------------- --------------
Common and preferred shares offering costs and underwriting discount paid (3,293,503)
----------------------------------------------------------------------------------------- --------------
Cash dividends paid (excluding reinvestment of $2,677,769) (11,682,215)
----------------------------------------------------------------------------------------- --------------
NET CASH FROM FINANCING ACTIVITIES 538,486,782
========================================================================================= ==============
NET INCREASE IN CASH 4,436,787
----------------------------------------------------------------------------------------- --------------
CASH AT BEGINNING OF PERIOD 100,001
----------------------------------------------------------------------------------------- --------------
CASH AT END OF PERIOD 4,536,788
========================================================================================= ==============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
TO NET CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from investment operations $ 19,675,766
----------------------------------------------------------------------------------------- --------------
Increase in receivable for investments sold (13,002,829)
----------------------------------------------------------------------------------------- --------------
Increase in interest receivable (3,187,826)
----------------------------------------------------------------------------------------- --------------
Increase in periodic payments receivable on swaps (287,610)
----------------------------------------------------------------------------------------- --------------
Increase in premium for swaps purchased (925,000)
----------------------------------------------------------------------------------------- --------------
Increase in premium for swaps sold 534,008
----------------------------------------------------------------------------------------- --------------
Increase in prepaid expenses (32,454)
----------------------------------------------------------------------------------------- --------------
Increase in payable to Investment Manager 354,912
----------------------------------------------------------------------------------------- --------------
Increase in net unrealized depreciation on swaps 148,911
----------------------------------------------------------------------------------------- --------------
Increase in unrealized depreciation on forward foreign currency contracts 118,083
----------------------------------------------------------------------------------------- --------------
Increase in unrealized depreciation on unfunded loan commitments 150,965
----------------------------------------------------------------------------------------- --------------
Increase in variation margin on futures contracts (119,731)
----------------------------------------------------------------------------------------- --------------
Increase in receivable from swap counterparty (374,250)
----------------------------------------------------------------------------------------- --------------
Increase in accrued expenses 145,570
----------------------------------------------------------------------------------------- --------------
Increase in deferred facility fees 353,925
----------------------------------------------------------------------------------------- --------------
Increase in payable for investments purchased 28,724,879
----------------------------------------------------------------------------------------- --------------
Net increase in investments (566,327,314)
========================================================================================= ==============
NET CASH USED FOR OPERATING ACTIVITIES $ (534,049,995)
========================================================================================= ==============
* Commencement of operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
PIMCO FLOATING RATE INCOME FUND NOTES TO FINANCIAL STATEMENTS
July 31, 2004
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PIMCO Floating Rate Income Fund (the "Fund") was organized as a Massachusetts
business trust on June 19, 2003. Prior to commencing operations on August 29,
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 thereunder, as amended, and the sale and issuance of 5,168 shares of
beneficial interest at an aggregate purchase price of $100,001 to Allianz
Dresdner Asset Management of America L.P. ("ADAM"). PA Fund Management LLC (the
"Investment Manager") serves as the Fund's Investment Manager and is an
indirect, wholly-owned subsidiary of ADAM. ADAM is an indirect, majority-owned
subsidiary of Allianz AG. The Fund has an unlimited amount of $0.00001 par value
common stock authorized.
The Fund's investment objective is to seek high current income, consistent with
the preservation of capital by investing primarily in floating rate debt
instruments, a substantial portion of which will be senior floating rate loans.
The ability of the issuers of the Fund's investments to meet their obligations
may be affected by economic developments in a specific industry.
The Fund issued 16,250,000 shares of common stock, in its initial public
offering. An additional 1,500,000 shares were issued in connection with the
exercise of the underwriters' over-allotment option. These shares were all
issued at $20.00 per share before an underwriting discount of $0.65 per share.
Common offering costs of $710,000 (representing $0.04 per share) were offset
against the proceeds of the offering and have been charged to paid-in capital in
excess of par. The Investment Manager agreed to pay all offering costs (other
than the sales load) and organizational expenses exceeding $0.04 per share.
Because aggregate offering costs and organizational expenses exceeded $0.04 per
common share, all organizational expenses and offering costs in excess of $0.04
per common share were reimbursed by the Investment Manager. In addition, the
underwriters' commission and offering costs associated with the issuance of
Preferred Shares in the amounts of $2,100,000 and $483,503, respectively, have
been charged to paid-in capital in excess of par.
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 the normal course of business the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
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. The Fund's investments in
senior floating rate loans ("Senior Loans") are valued in accordance with
guidelines established by the Board of Trustees. Under the Fund's guidelines,
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 a Board-approved independent pricing service. Other Senior Loans are
valued at fair value by the Fund's Sub-Adviser, pursuant to procedures approved
by the Board of Trustees. Such procedures 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 affecting the fair value of the Senior
Loan. Other portfolio securities and financial instruments are valued by an
independent pricing service approved by the Board of Trustees, dealer
quotations, or are valued at the last sale price on the exchange that is the
primary market for such securities, or the last quoted bid 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. The independent pricing service
uses information provided by market makers or estimates of market values
obtained from yield data relating to investments or securities with similar
characteristics. Short-term investments maturing in 60 days or less are valued
at amortized cost, if their original 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. Securities for which market quotations are not
readily available or if a development/significant event occurs that
significantly impact the value of the security, may be fair valued pursuant to
guidelines established by the Board of Trustees. The prices used by the Fund to
value securities may differ from the value that would be realized if the
securities were sold. The Fund's net asset value is
17
determined weekly on the last business day of the week at the close of regular
trading (normally, 4:00 p.m., Eastern Time) on the New York Stock Exchange.
(b) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income is recorded on an accrual basis. 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. Facility fees and
other fees (such as origination fees) received by the Fund are amortized as
income over the expected term of the 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. In addition, by distributing substantially all
of its ordinary income and long-term capital gains, if any, during each calendar
year the Fund intends not to be subject to U.S. federal excise tax.
(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 either considered
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.
(e) FOREIGN CURRENCY TRANSLATION
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.
(f) 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 "Lenders"). 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.
(g) 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 a credit default swap contract, the Fund would be required to pay
the notional or other agreed-upon value 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.
18
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
or other agreed upon value from the counterparty in the event of default by a
third party, such as a U.S. or foreign corporate issuer on the referenced debt
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 charged to realized gains/(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 net realized gain/(loss) on the Statement of Operations.
Swaps are marked to market daily by the Fund's Investment Manager based upon
quotations from market makers and the change in value, if any, is recorded as
unrealized appreciation or depreciation in the Fund's Statement of Operations.
For a credit default swap sold by the Fund, payment of the 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.
(h) FORWARD FOREIGN CURRENCY CONTRACTS
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 into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another. 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
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 gains and losses are
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.
(i) OPTION TRANSACTIONS
The Fund may purchase and write (sell) put and call options for hedging and/or
risk management purposes. 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 which is subsequently adjusted to the current market value of
the option written. 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 an written
option could result in the Fund purchasing a security at a price different from
the current market price.
19
(j) 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.
(k) REPURCHASE AGREEMENTS
The Fund may enter into transactions with its custodian bank or securities
brokerage firms approved by the Board of Trustees 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.
(l) 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.
Like an investment in a bond, investments in these 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 trust's receipt of
payments from, and the trust's potential obligations to, the counterparties to
the derivative instruments and other securities in which the trust invests.
(m) 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 custodian and
accounting agent fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Fund.
2. INVESTMENT MANAGER AND SUB-ADVISER
The Fund has entered into an Investment Management Agreement (the "Agreement")
with the Investment Manager to serve as the Fund's Investment Manager. Subject
to the supervision of the Fund's Board of Trustees, the Investment Manager is
responsible for managing, either directly or through others selected by it, the
investment activities of the Fund and the Fund's business affairs and other
administrative matters. Pursuant to the Agreement, the Investment Manager will
receive an annual fee, payable monthly, at an annual rate of 0.75% of the Fund's
average weekly total managed assets. Total managed assets refer to the total
assets of the Fund (including assets attributable to any Preferred Shares or
other forms of leverage that may be outstanding minus accrued liabilities (other
than liabilities representing leverage). The Investment Manager has retained its
affiliate, Pacific Investment Management Company LLC (the "Sub-Adviser") to
manage the Fund's investments. Subject to the supervision of the Investment
Manager, the Sub-Adviser is responsible for making all investment decisions. The
Investment Manager (not the Fund) pays a portion of the fees it receives to the
Sub-Adviser in return for its services, at the maximum annual rate of 0.39% of
the Fund's average weekly total managed assets for the period from commencement
of operations through August 31, 2008. Commencing September 1, 2008, the
Investment Manager will pay the Sub-Adviser a monthly fee at the annual rate of
0.55% of the Fund's average weekly total managed assets. The Investment Manager
informed the Fund that it paid the Sub-Adviser $1,827,342 in connection with its
sub-advisory services for the period ended July 31, 2004.
20
3. INVESTMENTS IN SECURITIES
For the period ended July 31, 2004, purchases and sales of investments, other
than short-term securities, were $843,678,637 and $359,425,776, respectively.
(a) Credit default swap contracts outstanding at July 31, 2004:
NOTIONAL
SWAP AMOUNT
COUNTERPARTY/ PAYABLE ON PAYMENTS UNREALIZED
REFERENCED DEBT DEFAULT RECEIVED APPRECIATION
OBLIGATION (000) TERMINATION DATE BY FUND (DEPRECIATION)
--------------------------------------------------------------------------------
Bear Stearns
MGM Credit $ 1,500 9/20/2009 1.92% $ (5,772)
Bear Stearns
Royal Carribean Credit 1,500 9/20/2007 1.50% (5,562)
Citigroup
Allied Waste Credit 1,500 9/20/2007 2.18% (23,960)
Citigroup
Crown Cork Credit 1,500 9/20/2007 2.38% (8,371)
Citigroup
Owens Illinois 3,000 9/20/2007 2.05% (197,120)
Citigroup
Starwood Credit 1,500 9/20/2007 1.20% (7,765)
Credit Suisse
SAMI 7,800 9/20/2008 2.45% 23,927
Credit Suisse
SAMI 5,460 9/20/2008 2.45% 13,199
Credit Suisse
SAMI 3,900 9/20/2008 2.45% (19,387)
UBS
IBOXX Credit 9,000 6/20/2009 2.65% (42,613)
UBS
DowJones CDX 22,000 12/20/2009 3.75% (215,175)
JP Morgan Chase
AES Corp. Credit 1,500 9/20/2007 2.15% (79,174)
JP Morgan Chase
Trac-X EMDI 10,000 12/20/2008 4.07% 224,072
JP Morgan Chase
Trac-X EMDI 5,000 12/20/2008 4.07% (17,964)
JP Morgan Chase
DowJones CDX 5,000 12/20/2009 3.75% (77,653)
Lehman Brothers
Triton Credit 5,000 6/20/2008 3.00% 15,406
Lehman Brothers
L-3Com Revol. Credit 5,000 12/20/2008 1.50% (11,190)
Merrill Lynch
PSEG Energy Credit 3,500 12/4/2006 2.95% 135,499
Merrill Lynch
Williams Credit 3,000 11/15/2004 5.25% 74,590
-------------
$ (225,013)
=============
21
(b) Interest rate swap contracts outstanding at July 31, 2004:
NOTIONAL
AMOUNT
PAYABLE ON PAYMENTS PAYMENTS UNREALIZED
SWAP DEFAULT MADE RECEIVED APPRECIATION
COUNTERPARTY (000) TERMINATION DATE BY FUND BY FUND (DEPRECIATION)
---------------------------------------------------------------------------------------------
Barclay's Bank plc $ 22,000 12/15/2006 3 Month LIBOR 4.00% $ 52,826
Barclay's Bank plc 22,000 12/15/2006 3 Month LIBOR 4.00% 27,966
Lehman Brothers
USD-LIBOR BBA 3,300 12/15/2024 6.00% 3 Month LIBOR (11,024)
Lehman Brothers
USD-LIBOR BBA 3,300 12/15/2024 6.00% 3 Month LIBOR 6,334
--------
$ 76,102
========
LIBOR - London Interbank Offered Rate
The Fund received $750,000 par value in securities as collateral for swap
contracts written.
(c) Futures contracts outstanding at July 31, 2004:
NOTIONAL EXPIRATION UNREALIZED
TYPE AMOUNT DATE DEPRECIATION
---------------------------------------------------------------------------------------
Long: Financial Future Euro-CME 615,000 3/14/05 $ 405,900
Financial Future Euribor, June 2005 465,000 6/13/05 42,288
=========
$ 448,188
=========
(d) Forward foreign currency contracts outstanding at July 31, 2004:
UNREALIZED
U.S.$ VALUE U.S.$ VALUE APPRECIATION
ORIGINATION DATE JULY 31, 2004 (DEPRECIATION)
-------------------------------------------------
PURCHASED:
569,894,000 Japanese Yen settling 8/25/04 $ 5,279,299 $ 5,118,777 $ (160,522)
SOLD:
1,289,000 Euro Dollars settling 8/23/04 1,593,726 1,551,287 42,439
============
$ (118,083)
============
(e) At July 31, 2004, the Fund had the following unfunded loan commitments which
could be extended at the option of the Borrower:
BORROWER UNFUNDED COMMITMENTS
------------------------------------------------------
Celanese AG Term B $ 631,097
Houghton Mifflin Co. 2,008,147
Spectrasite Comm. Revolver 2,950,500
Tenet Healthcare Corp. 3,284,583
-----------
$ 8,874,327
-----------
4. INCOME TAX INFORMATION
The tax character of dividends paid for the period August 29, 2003 (commencement
of operations) through July 31, 2004 of $15,873,574 was comprised entirely of
ordinary income.
At July 31, 2004, the tax character of distributable earnings of $1,659,608 was
comprised entirely of ordinary income.
In accordance with U.S. Treasury regulations, the Fund elected to defer realized
capital losses of $244,094 and currency losses of $329,869 arising after October
31, 2003. Such losses are treated for tax purposes as arising on August 1, 2004.
22
5. AUCTION PREFERRED SHARES
The Fund has issued 2,800 shares of Preferred Shares Series T, 2,800 shares of
Preferred Shares Series W and 2,800 shares of Preferred Shares Series Th, each
with a net asset and liquidation value of $25,000 per share plus accrued
dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures. Distributions of net realized capital gains, if any, are paid
annually.
For the period ended July 31, 2004, the annualized dividend rate ranged from:
HIGH LOW AT JULY 31, 2004
--------------------------------------------------------------------------------
Series T 1.75% 1.06% 1.64%
Series W 1.75% 1.06% 1.62%
Series TH 1.75% 1.06% 1.65%
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 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 August 6, 2004, a dividend of $0.08560 per share was declared to common
shareholders payable September 3, 2004 to shareholders of record on August 20,
2004.
On September 3, 2004, a dividend of $0.8752 per share was declared to common
shareholders payable October 1, 2004 to shareholders of record on September 17,
2004.
7. LEGAL PROCEEDINGS
On June 1, 2004, the Attorney General of the State of New Jersey announced that
it had entered into a settlement agreement with ADAM and certain other
affiliates of the Investment Manager, in connection with a complaint filed by
the New Jersey Attorney General ("NJAG"). The NJAG dismissed its claims against
the Sub-Adviser, which had been filed as part of the same complaint. In the
settlement, ADAM and other named affiliates neither admitted nor denied the
allegations or conclusions of law, but did agree to pay New Jersey a civil fine
of $15 million and $3 million for investigative costs and further potential
enforcement initiatives against unrelated parties. They also undertook to
implement certain governance changes. The complaint relating to the settlement
alleged, among other things, that ADAM and the other affiliates had failed to
disclose that they improperly allowed certain hedge funds to engage in "market
timing" in various open-end investment companies ("open-end funds") advised or
distributed by the Investment Manager and certain of its affiliates. The
complaint sought injunctive relief, civil monetary penalties, restitution and
disgorgement of profits.
On September 13, 2004, the Securities and Exchange Commission (the "Commission")
announced that the Investment Manager and certain of its affiliates had agreed
to a settlement of charges that they and certain of their officers had, among
other things, violated various antifraud provisions of the federal securities
laws in connection with an alleged market-timing arrangement involving trading
of shares of various open-end funds advised and/or distributed by the Investment
Manager and its affiliates. In the settlement, the Investment Manager and their
affiliates consented to the entry of an order by the Commission and, without
admitting or denying the findings contained in the order, agreed to implement
certain compliance and governance changes and consented to cease-and-desist
orders and censures. In addition, the Investment Manager and its affiliates
agreed to pay civil money penalties aggregating $40 million and to pay jointly
disgorgement in the amount of $10 million, for an aggregate payment of $50
million. In connection with the settlement, the Commission has indicated that it
will seek to dismiss the Investment Manager and its affiliates from the related
complaint it filed on May 6, 2004 in the U.S. District Court in the Southern
District of New York. Neither the complaint nor the order alleges any
inappropriate activity took place with respect to the Fund.
On September 15, 2004, the Commission announced that the Investment Manager and
certain of its affiliates agreed to settle an enforcement action in connection
with charges that they violated various antifraud and other provisions of
federal securities laws as a result of, among other things, their failure to
disclose to the board of trustees and shareholders of various open-end funds
advised or distributed by the Investment Manager and its affiliates material
23
facts and conflicts of interest that arose from their use of brokerage
commissions on portfolio transactions to pay for so-called "shelf space"
arrangements with certain broker-dealers. In the settlement, the Investment
Manager and its affiliates consented to the entry of an order by the Commission
without admitting or denying the findings contained in the order. In connection
with the settlement, the Investment Manager and its affiliates agreed to
undertake certain compliance and disclosure reforms and consented to
cease-and-desist orders and censures. In addition, the Investment Manager and
one of its affiliates agreed to jointly pay a civil monetary penalty of $4
million another affiliate agreed to pay a civil monetary penalty of $1 million
and the Investment Manager and its affiliates agreed to jointly pay disgorgement
of $6.6 million based upon the amount of brokerage commissions alleged to have
been paid by such open-end funds in connection with these arrangements (and
related interest). In a related action, the California Attorney General
announced on September 15, 2004 that it had entered an agreement with an
affiliate of the Investment Manager in resolution of an investigation into
matters that are similar to those discussed in the Commission's order. The
settlement agreement resolves matters described in the compliant filed by the
California Attorney General in the Superior Court of the State of California
alleging, among other things, that this affiliate violated certain antifraud
provisions of California law by failing to disclose matters related to the
shelf-space arrangements described above. In the settlement agreement, the
affiliate did not admit to any liability but agreed to pay $5 million in civil
penalties and $4 million in recognition of the California Attorney General's
fees and costs associated with the investigation and related matters. Neither
the Commission's order nor the California Attorney General's complaint alleges
any inappropriate activity took place with respect to the Fund.
Since February 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates have been named as defendants in 14 lawsuits filed in U.S.
District Court in the Southern District of New York, the Central District of
California and the Districts of New Jersey and Connecticut. Ten of those
lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; four of those lawsuits concern "revenue sharing" with
brokers offering "shelf space" and have been consolidated into a single action
in the U.S. District Court for the District of Connecticut. The lawsuits have
been commenced as putative class actions on behalf of investors who purchased,
held or redeemed shares of affiliated funds during specified periods or as
derivative actions on behalf of the funds. The lawsuits generally relate to the
same facts that are the subject of the regulatory proceedings discussed above.
The lawsuits seek, among other things, unspecified compensatory damages plus
interest and, in some cases, punitive damages, the rescission of investment
advisory contracts, the return of fees paid under those contracts and
restitution. The Fund has been named in three of the lawsuits concerning market
timing. The Investment Manager and the Sub-Adviser believe that other similar
lawsuits may be filed in U.S. federal or state courts naming as defendants the
Investment Manager, the Sub-Adviser, ADAM, the Fund, other open- and closed-end
funds advised or distributed by the Investment Manager, the Sub-Adviser and/or
their affiliates, the boards of trustees of those funds, and/or other affiliates
as defendants.
Under Section 9(a) of the Investment Company Act of 1940, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
the Investment Manager, the Sub-Adviser, ADAM and/or their affiliates, they and
their affiliates would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the Fund.
In connection with an inquiry from the Commission concerning the status of the
New Jersey settlement described above under Section 9(a), the Investment
Manager, the Sub-Adviser, and certain of their affiliates (together, the
"Applicants") have sought exemptive relief from the Commission under Section
9(c) of the Investment Company Act of 1940. The Commission has granted the
Applicants a temporary exemption from the provisions of Section 9(a) with
respect to the New Jersey settlement until the earlier of (i) September 13, 2006
and (ii) the date on which the Commission takes final action on their
application for a permanent order. There is no assurance that the Commission
will issue a permanent order.
It is possible that these matters and/or other developments resulting from these
matters could lead to a decrease in the market price of the Fund's shares or
other adverse consequences to the Fund and its shareholders. However, 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 the Investment Manager's or
the Sub-Adviser's ability to perform its respective investment advisory services
relating to the Fund.
8. CHAIRMAN RESIGNATION
On July 29, 2004, Stephen Treadway resigned as the Fund's Chairman.
24
PIMCO FLOATING RATE INCOME FUND FINANCIAL HIGHLIGHTS
For a share of common stock outstanding for the period August 29, 2003* through
July 31, 2004:
Net asset value, beginning of period $ 19.35**
------------------------------------------------------------------------------------------ -------------
INVESTMENT OPERATIONS:
Net investment income 0.71
------------------------------------------------------------------------------------------ -------------
Net realized and unrealized gain on investments, swaps and foreign currency transactions 0.39
------------------------------------------------------------------------------------------ -------------
Total from investment operations 1.10
------------------------------------------------------------------------------------------ -------------
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (0.11)
------------------------------------------------------------------------------------------ -------------
Net increase in net assets applicable to common shares resulting from
investment operations 0.99
------------------------------------------------------------------------------------------ -------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM NET INVESTMENT INCOME: (0.78)
------------------------------------------------------------------------------------------ -------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital in excess of par (0.04)
------------------------------------------------------------------------------------------ -------------
Preferred shares offering costs/underwriting discount charged to paid-in capital
in excess of par (0.14)
------------------------------------------------------------------------------------------ -------------
Total capital share transactions (0.18)
------------------------------------------------------------------------------------------ -------------
Net asset value, end of period $ 19.38
------------------------------------------------------------------------------------------ -------------
Market price, end of period $ 20.47
------------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENT RETURN(1) 6.55%
------------------------------------------------------------------------------------------ -------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of period (000) $ 346,749
------------------------------------------------------------------------------------------ -------------
Ratio of expenses to average net assets (2)(3)(4) 1.36%
------------------------------------------------------------------------------------------ -------------
Ratio of net investment income to average net assets (2)(4) 4.04%
------------------------------------------------------------------------------------------ -------------
Preferred shares asset coverage per share $ 66,274
------------------------------------------------------------------------------------------ -------------
Portfolio turnover 94%
------------------------------------------------------------------------------------------ -------------
* Commencement of operations.
** Initial public offering price of $20.00 per share less underwriting discount
of $0.65 per share.
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day and a sale at the current market
price on the last day of the period reported. Dividends are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or sales charges. Total investment return for a period
of less than one year is not annualized.
(2) Calculated on the basis of income and expenses applicable to both common and
preferred shares relative to the average net assets of common shareholders.
(3) Inclusive of expenses offset by custody credits on cash balances at the
custodian bank. (See note 1(m) in Notes to Financial Statements).
(4) Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
PIMCO FLOATING RATE INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
PIMCO FLOATING RATE INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets applicable to common shareholders and cash flows and the financial
highlights present fairly, in all material respects, the financial position of
PIMCO Floating Rate Income Fund (the "Fund") at July 31, 2004, and the results
of its operations, the changes in its net assets applicable to common
shareholders, cash flows and the financial highlights for the period August 29,
2003 (commencement of operations) through July 31, 2004, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at July 31, 2004 by
correspondence with the custodian, brokers and agent banks, provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
September 28, 2004
26
PIMCO FLOATING RATE INCOME FUND PRIVACY POLICY, PROXY VOTING,
OTHER INFORMATION (unaudited)
PRIVACY POLICY:
OUR COMMITMENT TO YOU
We consider customer privacy to be a fundamental aspect of our relationship with
clients. We are committed to maintaining the confidentiality, integrity, and
security of our current, prospective and former clients' personal information.
We have developed policies designed to protect this confidentiality, while
allowing client needs to be served.
OBTAINING PERSONAL INFORMATION
In the course of providing you with products and services, we may obtain
non-public personal information about you. This information may come from
sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your brokerage
or financial advisory firm, financial adviser or consultant, and/or from
information captured on our internet web sites.
RESPECTING YOUR PRIVACY
We do not disclose any personal or account information provided by you or
gathered by us to non-affiliated third parties, except as required or permitted
by law. As is common in the industry, non-affiliated companies may from time to
time be used to provide certain services, such as preparing and mailing
prospectuses, reports, account statements and other information, conducting
research on client satisfaction, and gathering shareholder proxies. We may also
retain non-affiliated companies to market our products and enter in joint
marketing agreements with other companies. These companies may have access to
your personal and account information, but are permitted to use the information
solely to provide the specific service or as otherwise permitted by law. We may
also provide your personal and account information to your brokerage or
financial advisory firm and/or to your financial adviser or consultant.
SHARING INFORMATION WITH THIRD PARTIES
We do reserve the right to disclose or report personal information to
non-affiliated third parties in limited circumstances where we believe in good
faith that disclosure is required under law, to cooperate with regulators or law
enforcement authorities, to protect our rights or property, or upon reasonable
request by any mutual fund in which you have chosen to invest. In addition, we
may disclose information about you or your accounts to a non-affiliated third
party at your request or if you consent in writing to the disclosure.
SHARING INFORMATION WITH AFFILIATES
We may share client information with our affiliates in connection with servicing
your account or to provide you with information about products and services that
we believe may be of interest to you. The information we share may include, for
example, your participation in our mutual funds or other investment programs,
your ownership of certain types of accounts (such as IRAs), or other data about
your accounts. Our affiliates, in turn, are not permitted to share your
information with non-affiliated entities, except as required or permitted by
law.
IMPLEMENTATION OF PROCEDURES
We take seriously the obligation to safeguard your non-public personal
information. We have implemented procedures designed to restrict access to your
non-public personal information to our personnel who need to know that
information to provide products or services to you. To guard your non-public
personal information, physical, electronic, and procedural safeguards are in
place.
PROXY VOTING:
A description of the policies and procedures that the Fund has adopted to
determine how to vote proxies relating to portfolio securities is available (i)
without charge, upon request, by calling the Fund at (800) 331-1710 (ii) on the
Fund's web site at www.pimcoadvisors.com; and (iii) on the Securities and
Exchange Commission's website at www.sec.gov. Information about how the Fund
voted proxies relating to portfolio securities held during the period August 29,
2003 (commencement of operations) through June 30, 2004 is available (i) without
charge, upon request, by calling the Fund at 1-800-331-1710; (ii) on the Fund's
website at www.pimcoadvisors.com; and (iii) on the SEC's website at
http://www.sec.gov.
OTHER INFORMATION:
Since August 29, 2003, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Fund: or (iv) change in the persons primarily responsible for
the day-to-day management of the Fund's portfolio.
Commencing with the Fund's first fiscal quarter ending October 31, 2004, the
Fund will file it's complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "Commission") on Form N-Q. Form N-Q will be
available (i) on the Fund's website at www.pimcoadvisors.com (ii) on the
Commission's website at www.sec.gov, and (iii) the Commission's Public Reference
Room which is located at the Commission's headquater's office at 450 5th Street
N.W. Room 1200, Washington, District of Columbia 20549, telephone number
(202) 942-8090.
27
PIMCO FLOATING RATE INCOME FUND DIVIDEND REINVESTMENT PLAN (unaudited)
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
dividends, including any capital gain dividends, reinvested automatically in
additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the
"Plan Agent"), unless the shareholder elects to receive cash. An election to
receive cash may be revoked or reinstated at the option of the shareholder. In
the case of record shareholders such as banks, brokers or other nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder as representing the total amount
registered in such shareholder's name and held for the account of beneficial
owners who are to participate in the Plan. Shareholders whose shares are held in
the name of a bank, broker or nominee should contact the bank, broker or nominee
for details. All distributions to investors who elect not to participate in the
Plan (or whose broker or nominee elects not to participate on the investor's
behalf), will be paid cash by check mailed, in the case of direct shareholder,
to the record holder by PFPC Inc., as the Fund's dividend disbursement agent.
Unless you (or your broker or nominee) elects not to participate in the Plan,
the number of Common Shares you will receive will be determined as follows:
(1) If common Shares are trading at or above net asset value on the payment
date, the Fund will issue new shares at the greater of (i) the net asset
value per Common Share on the payment date or (ii) 95% of the market price
per Common Share on the payment date; or
(2) If Common Shares are trading below net asset value (minus estimated
brokerage commissions that would be incurred upon the purchase of Common
Shares on the open market) on the payment date, the Plan Agent will receive
the dividend or distribution in cash and will purchase Common Shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price on the payment date, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common
Shares issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open market
on or shortly after the payment date, but in no event later than the
ex-dividend date for the next distribution. Interest will not be paid on any
uninvested cash payments.
You may withdraw from the Plan at any time by giving notice to the Plan Agent.
If you withdraw or the Plan is terminated, you will receive a certificate for
each whole share in your account under the Plan and you will receive a cash
payment for any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. The Plan Agent will also furnish each person who
buys Common Shares with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive distributions in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares you
have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvested dividends and distributions are taxed in the same
manner as cash dividends and distributions.
The Fund and the Plan Agent reserve the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants. Additional information about the Plan may be obtained from the
Fund's transfer agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027,
telephone number 1-800-331-1710.
28
PIMCO FLOATING RATE INCOME FUND BOARD OF TRUSTEES (unaudited)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
---------------------------------------------------------------------------------------------------------------------
PAUL BELICA Director, Student Loan Finance Corp., Education Loans, Inc.,
1345 Avenue of the Americas Goal Funding I, Inc., Goal Funding II, Inc., and
New York, NY 10105 Surety Loan Funding, Inc.; Formerly senior executive and
Age: 82 member of the board of Smith Barney, Harris Upham & Co.;
TRUSTEE SINCE: 2003 and the CEO of five State of New York agencies.
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2005 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 20 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
ROBERT E. CONNOR Corporate Affairs Consultant; Formerly, Senior Vice President,
1345 Avenue of the Americas Corporate Office, Smith Barney, Inc.
New York, NY 10105
Age: 69
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2004 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE/DIRECTOR OF 20 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
JOHN J. DALESSANDRO II Formerly President and Director, J.J. Dalessandro II Ltd.
1345 Avenue of the Americas registered broker-dealer and member of the
New York, NY 10105 New York Stock Exchange.
Age: 67
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2005 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 15 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
HANS W. KERTESS President, H Kertess & Co.; Formerly, Managing Director,
1345 Avenue of the Americas Royal Bank of Canada Capital Markets.
New York, NY 10105
Age: 65
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2004 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 15 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
29
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TRUSTEES AND PRINCIPAL OFFICERS
Paul Belica
Trustee
Robert E. Connor
Trustee
John J. Dalessandro II
Trustee
David C. Flattum
Trustee
Hans W. Kertess
Trustee
Brian S. Shlissel
President & Chief Executive Officer
Newton B. Schott, Jr.
Vice President & Secretary
Raymond G. Kennedy
Vice President
Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Jennifer A. Patula
Assistant Secretary
INVESTMENT MANAGER
PA 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
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 Floating Rate 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.
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.
Information on the Fund is available at www.pimcoadvisors.com or by calling
1-800-331-1710.
[PIMCO ADVISORS LOGO]
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics (the "Section 406 Standards for Investment
Companies -- Ethical Standards for Principal Executive and Financial
Officers") that applies to the registrant's Principal Executive
Officer and Principal Financial Officer; the registrant's Principal
Financial Officer also serves as the Principal Accounting Officer. The
registrant undertakes to provide a copy of such code of ethics to any
person upon request, without charge, by calling 1-800-331-1710.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's Board has determined
that Mr. Paul Belica, a member of the Board's Audit Oversight Committee is an
"audit committee financial expert," and that he is "independent," for purposes
of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by
the Registrant's principal accountant (the "Auditor")for the audit of
the Registrant's annual financial statements, or services that are
normally provided by the Auditor in connection with the statutory and
regulatory filings or engagements for the Reporting Periods, was
$91,000 in 2004.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods
for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit registrant's
financial statements and are not reported under paragraph (e) of this
Item was $33,000 in 2004. These services consist of accounting
consultations, agreed upon procedure reports (inclusive of annual
review of basic maintenance testing associated with the Preferred
Shares), attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax compliance, tax
service and tax planning ("Tax Services") was $3,000 in 2004. These
services consisted of review or preparation of U.S. federal, state,
local and excise tax returns.
d) All Other Fees. There were no other fees billed in the Reporting
Periods for products and services provided by the Auditor to the
Registrant.
e) 1. Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of all audit and permissible non-audit services by
the Auditor for the Registrant, as well as the Auditor's engagements
for non-audit services to the when the engagement relates directly to
the operations and financial reporting of the Registrant. The
Registrant's policy is stated below.
PIMCO Floating Rate Income Fund (THE "FUND")
AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE
INDEPENDENT ACCOUNTANTS
The Funds' Audit Oversight Committee ("Committee") is charged with the oversight
of the Funds' financial reporting policies and practices and their internal
controls. As part of this responsibility, the Committee must pre-approve any
independent accounting firm's engagement to render audit and/or permissible
non-audit services, as required by law. In evaluating a proposed engagement by
the independent accountants, the Committee will assess the effect that the
engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to provided,
the fees to be charged in connection with the services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUNDS
On an annual basis, the Funds' Committee will review and pre-approve the scope
of the audits of the Funds and proposed audit fees and permitted non-audit
(including audit-related) services that may be performed by the Funds'
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy. In addition to the Committee's pre-approval of
services pursuant to this Policy, the engagement of the independent accounting
firm for any permitted non-audit service provided to the Funds will also require
the separate written pre-approval of the President of the Funds, who will
confirm, independently, that the accounting firms's engagement will not
adversely affect the firm's independence. All non-audit services performed by
the independent accounting firm will be disclosed, as required, in filings with
the Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
Semiannual financial statement reviews
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of quarterly review of Basic
Maintenance testing associated with issuance of Preferred Shares and
semiannual report review)
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Funds' independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the following:
Federal, state and local income tax compliance; and, sales and use tax
compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
PROSCRIBED SERVICES
The Funds' independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or financial
statements of the Funds
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services Legal
services and expert services unrelated to the audit Any other service that the
Public Company Accounting Oversight Board
determines, by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND
COMPLEX
The Committee will pre-approve annually any permitted non-audit services to be
provided to PA Fund Management LLC (Formerly, PIMCO Advisors Fund Management
LLC) or any other investment manager to the Funds (but not including any
sub-adviser whose role is primarily portfolio management and is sub-contracted
by the investment manager) (the "Investment Manager") and any entity
controlling, controlled by, or under common control with the Investment Manager
that provides ongoing services to the Funds (including affiliated sub-advisers
to the Funds), provided, in each case, that the engagement relates directly to
the operations and financial reporting of the Funds (such entities, including
the Investment Manager, shall be referred to herein as the "Accounting
Affiliates"). Individual projects that are not presented to the Committee as
part of the annual pre-approval process, may be pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member who is a disinterested trustee under the
Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $100,000. Any such
pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
Although the Committee will not pre-approve all services provided to the
Investment Manager and its affiliates, the Committee will receive an annual
report from the Funds' independent accounting firm showing the aggregate fees
for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit services to a Fund or
Accounting Affiliates, the pre-approval requirement is waived if:
(1) The aggregate amount of all such permitted non-audit services provided
constitutes no more than (i) with respect to such services provided to
the Fund, five percent (5%) of the total amount of revenues paid by
the Fund to its independent accountant during the fiscal year in which
the services are provided, and(ii) with respect to such services
provided to Accounting Affiliates, five percent (5%)of the total
amount of revenues paid to the Fund's independent accountant by the
Fund and the Accounting Affiliates during the fiscal year in which the
services are provided;
(2) Such services were not recognized by the Fund at the time of the
engagement for such services to be non-audit services; and
(3) Such services are promptly brought to the attention of the Committee
and approved prior to the completion of the audit by the Committee or
by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
Committee Chairman or other delegate shall be reported to the full
Committee at its next regularly scheduled meeting.
e) 2. No services were approved pursuant to the procedures contained
in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to
the Adviser, for the 2004 Reporting Period was $36,500.
h) Auditor Independence. The Registrant's Audit Oversight Committee
has considered whether the provision of non-audit services that
were rendered to the Adviser which were not pre-approved is
compatible with maintaining the Auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of
the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES The registrant has delegated the voting of
proxies relating to its voting securities to its sub-adviser, Pacific Investment
Management Co. (the "Sub-Adviser"). The Proxy Voting Policies and Procedures of
the Sub-Adviser are included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES.
TOTAL NUMBER
OF SHARES PURCHASED MAXIMUM NUMBER OF
TOTAL NUMBER AVERAGE AS PART OF PUBLICLY SHARES THAT MAY YET BE
OF SHARES PRICE PAID ANNOUNCED PLANS OR PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE PROGRAMS OR PROGRAMS
------ --------- --------- -------- -----------
November 2003 N/A $19.27 17,640.5890 N/A
December 2003 N/A $19.28 17,524.9039 N/A
January 2004 N/A $19.41 17,071.6945 N/A
February 2004 N/A $19.36 16,662.7391 N/A
March 2004 N/A $19.36 15,852.0587 N/A
April 2004 N/A $19.33 15,388.8458 N/A
May 2004 N/A $19.17 13,227.3564 N/A
June 2004 N/A $19.20 12,748.2018 N/A
July 2004 N/A $19.48 12,490.0261 N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In January 2004, the
Registrant's Board of Trustees adopted a Nominating Committee Charter governing
the affairs of the Nominating Committee of the Board, which is posted on the
PIMCO Funds website at www.pimcoadvisors.com. Appendix B to the Nominating
Committee Charter includes "Procedures for Shareholders to Submit Nominee
Candidates," which sets forth the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees. Among other requirements, the
procedures provide that the recommending shareholder must submit any
recommendation in writing to the Registrant to the attention of the Registrant's
Secretary, at the address of the principal executive offices of the Registrant
and that such submission must be received at such offices not less than 45 days
nor more than 75 days prior to the date of the Board or shareholder meeting at
which the nominee would be elected. Any recommendation must include certain
biographical and other information regarding the candidate and the recommending
shareholder, and must include a written and signed consent of the candidate to
be named as a nominee and to serve as a Trustee if elected. The foregoing
description of the requirements is only a summary and is qualified in its
entirety by reference to Appendix B of the Nominating Committee Charter.
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940, as amended are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant's internal controls or
in factors that could affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS
(a)(1) Exhibit 99.CODE ETH- Code of Ethics
(a)(2) Exhibit 99.CERT - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906CERT - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.PROXYPOL - Proxy Voting Policies and Procedures
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PIMCO Floating Rate Income Fund
By /s/ Brian S. Shlissel
------------------------
Brian S. Shlissel, President & Chief Executive Officer
Date: October 7, 2004
By /s/ Lawrence G. Altadonna
----------------------------
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting
Officer
Date: October 7, 2004
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: October 7, 2004
By /s/ Lawrence G. Altadonna
----------------------------
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: October 7, 2004