The Fund. PIMCO Municipal Income Fund (the “Fund”) is a diversified, closed-end management investment company that commenced operations on June 29, 2011, following the initial public offering of its common shares.
The Fund’s common shares of beneficial interest, par value $0.00001 per share (the “Common Shares”) are listed on the New York Stock Exchange (“NYSE”) under the symbol PMF. The last reported sale price of the Common Shares, as reported by the NYSE on [ ] was $[ ] per Common Share. The net asset value (“NAV”) of the Common Shares at the close of business on [ ] was $[ ] per Common Share.
Investment Objectives. The Fund seeks to provide current income exempt from federal income tax.
Investment Strategy. Under normal circumstances, the Fund expects to invest at least 90% of its net assets
in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by PIMCO to be reliable), is exempt
from regular federal income taxes (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax). Subject to its other investment policies, the Fund may invest up to 20% of its total assets in investments the interest from which is subject to the federal alternative minimum tax.
Investment in the Fund’s Common Shares involves substantial risks arising from, among other strategies, the Fund’s ability to invest in debt instruments that are, at the time of purchase, rated below investment grade (below Baa3 by Moody’s Investors Service, Inc. or below BBB- by either S&P Global Ratings or Fitch, Inc.) or unrated but determined by PIMCO to be of comparable quality, the Fund’s exposure to foreign (including emerging markets) securities and currencies and to mortgage-related and other asset-backed securities, and the Fund’s use of leverage. Debt securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” The Fund’s exposure to municipal securities means it is particularly subject to the risk that a municipal issuer will be unable to make timely payments of interest and principal, which risk will generally be higher during general economic downturns and may be adversely impacted by litigation, legislation or political events, or by the bankruptcy of the issuer. Before investing in the Common Shares, you should read the discussion of the principal risks of investing in the Fund in “ Principal Risks of the Fund.” Certain of these risks are summarized in “Prospectus Summary—Principal Risks of the Fund.” The Fund cannot assure you that it will achieve its investment objectives, and you could lose all of your investment in the Fund.
Portfolio Contents. Under normal circumstances, the Fund expects to invest at least 90% of its net assets
in municipal bonds which pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by PIMCO to be reliable), is exempt
from regular federal income taxes (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax). Subject to its other investment policies, the Fund may invest up to 20% of its total assets in investments the interest from which is subject to the federal alternative minimum tax.
The municipal bonds in which the Fund invests are generally issued by a U.S. state or territory, a city in a U.S. state or territory, or a political subdivision, agency, authority, or instrumentality of such state, territory or city.
Also included within the general category of municipal bonds in which the Fund may invest are
participations in lease obligations.
The Fund invests at least 80% of its net assets in municipal bonds that are, at the time of purchase, rated “investment grade” by at least one of Moody’s Investors Service, Inc (“Moody’s”), S&P Global Ratings (“S&P”) or Fitch, Inc. (“Fitch”), or unrated but determined by
PIMCO to be of comparable quality. “Investment grade” means a rating, in the case of Moody’s, of Baa3 or higher, or in the case of S&P and Fitch, of
BBB- or higher.
The Fund may invest up to 20% of its net assets in municipal bonds that are, at the time of investment, rated Ba or
B or lower by Moody’s, BB or B or lower by S&P or Fitch or that are unrated but judged to be of comparable quality by PIMCO. In the event that ratings services
assign different ratings to the same security, PIMCO will use the highest rating as the credit rating for that security. Bonds of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal and are commonly referred to as “junk bonds.” Bonds in the lowest investment grade category may also be considered to possess some speculative characteristics.
The Fund may invest
in “structured” notes, which are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a
benchmark asset or market, such as selected securities or an index of securities, or the differential performance of two assets or markets, such as indices reflecting
taxable and tax-exempt bonds. The Fund may do so for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio (and thereby decreasing the
Fund’s exposure to interest rate risk).
The Fund may purchase municipal bonds that are additionally secured by insurance, bank credit agreements, or escrow accounts. The credit quality of companies which provide such credit enhancements will affect the value and overall credit risk posed by investments in such securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Fund’s income and returns.
The Fund may buy and sell municipal bonds on a when-issued, delayed delivery or forward commitment basis, making
payment or taking delivery at a later date. The Fund may invest in floating rate debt instruments (“floaters”), including inverse floaters, and engage in credit
spread trades.