PIMCO California Municipal Income Fund II
Table of Contents

 

 

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 811-21077

 

 

PIMCO California Municipal Income Fund II

(Exact name of registrant as specified in charter)

 

 

 

1633 Broadway, New York, New York   10019
(Address of principal executive offices)   (Zip code)

 

 

Lawrence G. Altadonna – 1633 Broadway, New York, New York 10019

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 212-739-3371

Date of fiscal year end: May 31, 2013

Date of reporting period: November 30, 2012

 

 

 


Table of Contents

Item 1. REPORT TO SHAREHOLDERS

 

LOGO

 

Semi-Annual Report

 

November 30, 2012

 

PIMCO Municipal Income Fund II

PIMCO California Municipal Income Fund II

PIMCO New York Municipal Income Fund II

 

LOGO


Table of Contents

Contents

 

Letter to Shareholders     2-3   
Fund Insights     4   
Performance & Statistics     5-6   
Schedules of Investments     7-27   
Statements of Assets and Liabilities     28   
Statements of Operations     29   
Statements of Changes in Net Assets     30-31   
Notes to Financial Statements     32-39   
Financial Highlights     40-42   
Annual Shareholder Meeting Results/Proxy Voting Policies & Procedures     43   
Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements     44-46   

 

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LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

Dear Shareholder:

The municipal bond market benefitted from attractive valuations and solid demand during the six-month fiscal reporting period ended November 30, 2012. Municipal securities with longer-term maturities and securities judged to be of lower credit quality tended to do particularly well during the period.

The Fiscal Six-Month Period in Review

For the six-month period ended November 30, 2012:

 

  PIMCO Municipal Income Fund II rose 10.98% on net asset value (“NAV”) and 13.07% on market price.

 

  PIMCO California Municipal Income Fund II rose 13.27% on NAV and 12.12% on market price.

 

  PIMCO New York Municipal Income Fund II rose 10.52% on NAV and 15.44% on market price.

As the fiscal reporting period began, gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, was expanding at a 1.3% annual rate during April-to-June, before accelerating to 3.1% growth during July-to-September 2012.

The Federal Reserve (the “Fed”) maintained a cautious stance revealing the launch of third round of so-called “quantitative easing.” This initiative would entail the purchase of $40 billion of mortgage securities each month for the foreseeable future. The objective is to lower, already record low mortgage rates in an effort to boost the housing market. The Fed also indicated that the Fed Funds rate would remain in the 0.0% to 0.25% range well into 2015, longer than previously forecasted. Shortly after the fiscal reporting period ended, the Fed confirmed that it would continue a previously announced program to buy $45 billion of Treasury bonds each month. Fed Chairman Ben Bernanke said these efforts would remain in place until the unemployment rate fell below 6.5%, which the Fed indicated may not be achieved until 2015.

Treasury yields were generally flat during the six-month fiscal reporting period. The benchmark ten-year Treasury bond began the fiscal period yielding 1.59% and ended it at 1.62%. At one point during the reporting period, the yield on the 10-year fell as low as 1.43%. Since interest rates on municipal bonds tend to track the rates of comparable Treasury bonds, many issuers of municipal securities refinanced existing bonds during reporting period. Refundings, reported Bond Buyer,

 

2   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


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accounted for a large portion of the estimated $370 billion in municipal bond volume. By comparison, issuance of new securities was relatively modest.

Outlook

The improving U.S. economy is reflected not just in GDP growth, but in the falling unemployment rate, which dropped to 7.7% in November 2012 — the lowest level since December 2008. Housing, a significant contributor to the recession of 2007-09, is improving both on a macro basis and in most key markets. These gains have bolstered the finances of state and local governments around the nation. Although states face a

collective $55 billion deficit in fiscal year 2013, they are in a much stronger financial position than a few years ago. We expect this trend to continue.

The federal government has fiscal problems of its own. We believe that lawmakers will edge away from the so-called “fiscal cliff” in order to avert negative consequences to the U.S. economy. Fiscal issues must eventually be dealt with, and one way of doing so is by growing the economy. In this respect, the United States is in the advantageous position of possessing, a vibrant, well-educated and flexible workforce, and demographics that bode well for the long-term. There is no denying that the U.S. economy faces serious challenges, however over countless market cycles and ever-changing economic conditions, it has always proven to be resilient. We are confident that this will once again be the case in the New Year.

For specific information on the Funds and their performance, please review the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds’ shareholder servicing agent at (800) 254-5197. In addition, a wide range of information and resources is available on our website, www.allianzinvestors.com/closedendfunds.

Together with Allianz Global Investors Fund Management LLC, the Funds’ investment manager, and Pacific Investment Management Company LLC (“PIMCO”), the Funds’ sub-adviser, we thank you for investing with us.

We remain dedicated to serving your investment needs.

Sincerely,

 

LOGO

Hans W. Kertess

Chairman

    

LOGO

Brian S. Shlissel

President & CEO

 

Receive this report electronically and eliminate paper mailings. To enroll, go to www.allianzinvestors.com/ edelivery.

 

11.30.12     PIMCO Municipal Income Funds II Semi-Annual Report     3   


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PIMCO Municipal Income Funds II Fund Insights

November 30, 2012 (unaudited)

 

For the six-months ended November 30, 2012, PIMCO Municipal Income Fund II returned 10.98% on net asset value (“NAV”) and 13.07% on market price.

For the six-months ended November 30, 2012, PIMCO California Municipal Income Fund II returned 13.27% on NAV and 12.12% on market price.

For the six-months ended November 30, 2012, PIMCO New York Municipal Income Fund II returned 10.52% on NAV and 15.44% on market price.

The municipal bond market generated positive results during the fiscal six-month reporting period ended November 30, 2012. The overall municipal market, as measured by the Barclays Municipal Bond Index (the “Index”), posted positive returns during five of the six months of the period. Technical factors were the main driver of returns over the period as new money and issue supply was not sufficient to meet robust investor demand, as evident by positive municipal mutual fund flows through all but one week of the period. From a fundamental perspective, many states continue to benefit from positive year-over-year tax receipts, however local property tax receipts continue to decline leading to some underperformance in the general obligation market versus most revenue sectors. All told, during the six-month period, the Index returned 4.18%. In comparison, the overall taxable fixed income market, as measured by the Barclays U.S. Aggregate Bond Index, gained 1.99% during the same period.

Performance benefited from a preference for revenue bonds versus general obligation bonds as revenue bonds outperformed general obligation bonds during the reporting period. The Funds’ were overweight in the Tobacco and corporate-backed sectors which was beneficial for results as both sectors outperformed the Index. New York Municipal Income Fund II also received a positive contribution from an overweight to the Health Care sector.

The Funds’ underweight exposure to the Water and Sewer Utility sector contributed to results as this sector outperformed in comparison to the Index. Municipal Income Fund II’s and New York Municipal Income Fund II’s underweight to the Transportation sector detracted from results. A shorter duration than the benchmark detracted from the performance of all three Funds’ as municipal yields declined during the six-month reporting period.

 

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PIMCO Municipal Income Funds II Performance & Statistics

November 30, 2012 (unaudited)

 

Municipal II:

 

Total Return(1):   Market Price      NAV  

Six Month

    13.07%         10.98%   

1 Year

    31.47%         27.69%   

5 Year

    7.58%         5.16%   

10 Year

    6.68%         6.04%   

Commencement of Operations (6/28/02) to 11/30/12

    6.17%         5.94%   

 

Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 11/30/12

 

LOGO

Market Price/NAV:       

Market Price

    $13.75   

NAV

    $12.80   

Premium to NAV

    7.42%   

Market Price Yield(2)

    5.67%   

Leverage Ratio(3)

    34.87%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

 

California Municipal II:

 

Total Return(1):   Market Price      NAV  

Six Month

    12.12%         13.27%   

1 Year

    26.62%         34.37%   

5 Year

    3.40%         1.53%   

10 Year

    4.81%         3.89%   

Commencement of Operations (6/28/02) to 11/30/12

    4.39%         3.74%   

 

Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 11/30/12

 

LOGO

Market Price/NAV:       

Market Price

    $10.97   

NAV

    $9.39   

Premium to NAV

    16.83%   

Market Price Yield(2)

    6.17%   

Leverage Ratio(3)

    40.82%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

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PIMCO Municipal Income Funds II Performance & Statistics

November 30, 2012 (unaudited)

 

New York Municipal II:

 

Total Return(1):   Market Price      NAV  

Six Month

    15.44%         10.52%   

1 Year

    31.47%         25.75%   

5 Year

    7.64%         4.66%   

10 Year

    6.61%         5.42%   

Commencement of Operations (6/28/02) to 11/30/12

    6.01%         5.32%   

 

Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 11/30/12

LOGO

Market Price/NAV:       

Market Price

    $13.75   

NAV

    $12.14   

Premium to NAV

    13.26%   

Market Price Yield(2)

    5.78%   

Leverage Ratio(3)

    41.23%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all income dividends, capital gain and return of capital distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual total return.

Performance at market price will differ from results at NAV. Although market price returns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Funds, market conditions, supply and demand for each Fund’s shares, or changes in each Fund’s dividends.

An investment in the Funds involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes 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 traded in the open market through a stock exchange. NAV is equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at November 30, 2012.

(3) Represents Floating Rate Notes issued in tender option bond transactions and Preferred Shares (collectively “Leverage”) outstanding, as a percentage of total managed assets. Total managed assets refer to the total assets (including assets attributable to Leverage) minus accrued liabilities (other than liabilities representing Leverage).

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

MUNICIPAL BONDS & NOTES – 97.9%

  

  Alabama – 1.2%    
$ 10,000     

Birmingham-Baptist Medical Centers Special Care Facs. Financing Auth. Rev.,
Baptist Health Systems, Inc., 5.00%, 11/15/30, Ser. A

  $ 10,519,000   
  1,235     

Montgomery BMC Special Care Facs. Financing Auth. Rev., 5.00%, 11/15/29, Ser. B (NPFGC)

    1,235,790   
  2,000     

State Docks Department Rev., 6.00%, 10/1/40

    2,387,760   
   

 

 

 
      14,142,550   
   

 

 

 
  Arizona – 7.2%    
 

Health Facs. Auth. Rev., Banner Health,

   
  3,500     

5.00%, 1/1/35, Ser. A

    3,784,200   
  2,860     

5.50%, 1/1/38, Ser. D

    3,208,319   
 

Pima Cnty. Industrial Dev. Auth. Rev.,

   
  29,700     

5.00%, 9/1/39

    31,609,116   
  1,500     

Tucson Electric Power Co., 5.25%, 10/1/40, Ser. A

    1,652,310   
 

Pinal Cnty. Electric Dist. No. 3 Rev.,

   
  1,750     

5.25%, 7/1/36

    1,993,128   
  3,700     

5.25%, 7/1/41

    4,187,586   
  10,000     

Salt River Project Agricultural Improvement & Power Dist. Rev., 5.00%, 1/1/39, Ser. A (i)

    11,497,400   
  22,400     

Salt Verde Financial Corp. Rev., 5.00%, 12/1/37

    27,080,256   
   

 

 

 
      85,012,315   
   

 

 

 
  California – 15.2%    
 

Bay Area Toll Auth. Rev., San Francisco Bay Area,

   
  6,000     

5.00%, 10/1/29

    7,026,960   
  1,430     

5.00%, 4/1/34, Ser. F-1

    1,631,558   
  1,565     

Foothill-Eastern Transportation Corridor Agcy. Rev., 5.875%, 1/15/26 (IBC-NPFGC)

    1,623,985   
 

Golden State Tobacco Securitization Corp. Rev.,

   
  16,000     

zero coupon, 6/1/37, Ser. A-2 (j)

    14,383,200   
  2,000     

5.00%, 6/1/45, Ser. A

    2,111,980   
  15,070     

5.75%, 6/1/47, Ser. A-1

    14,109,287   
  2,000     

Hayward Unified School Dist., GO, 5.00%, 8/1/33

    2,098,500   
 

Health Facs. Financing Auth. Rev.,

   
  1,500     

Scripps Health, 5.00%, 11/15/36, Ser. A

    1,685,775   
  6,300     

Sutter Health, 5.00%, 11/15/42, Ser. A (IBC-NPFGC)

    6,950,349   
  3,000     

Sutter Health, 6.00%, 8/15/42, Ser. B

    3,650,970   
  1,500     

Indian Wells Redev. Agcy., Tax Allocation, Whitewater Project, 4.75%, 9/1/34, Ser. A (AMBAC)

    1,405,185   
  2,000     

Los Angeles Community College Dist., GO, 5.00%, 8/1/32, Ser. A (FGIC-NPFGC)

    2,290,320   
  4,000     

Los Angeles Department of Water & Power Rev., 5.00%, 7/1/39, Ser. A-1 (AMBAC)

    4,458,760   
  5,000     

Los Angeles Unified School Dist., GO, 5.00%, 7/1/30, Ser. E (AMBAC)

    5,457,150   
  1,750     

M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B

    2,503,900   
  2,000     

Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)

    2,226,380   

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  California (continued)    
$ 3,145     

Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B

  $ 3,760,760   
  650     

Murrieta Valley Unified School Dist. Public Financing Auth., Special Tax, 4.75%, 9/1/36, Ser. A (AGC)

    675,207   
  3,000     

Newport Beach Rev., Hoag Memorial Hospital Presbyterian, 5.875%, 12/1/30

    3,734,010   
  500     

Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C

    556,400   
  2,000     

San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. 2008-A (AGM)

    2,202,380   
  3,300     

San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A

    3,807,870   
  2,000     

Santa Clara Cnty. Financing Auth. Rev., El Camino Hospital, 5.75%, 2/1/41, Ser. A (AMBAC)

    2,217,960   
 

State, GO,

   
  2,925     

5.00%, 11/1/32

    3,359,567   
  1,590     

5.00%, 6/1/37

    1,771,371   
  5,200     

5.125%, 8/1/36

    5,998,564   
  2,500     

5.25%, 3/1/38

    2,855,325   
  5,945     

5.25%, 11/1/40

    7,059,450   
  5,750     

5.50%, 3/1/40

    6,860,325   
  9,500     

6.00%, 4/1/38

    11,707,800   
 

Statewide Communities Dev. Auth. Rev.,

   
  2,970     

California Baptist Univ., 5.75%, 11/1/17, Ser. B (a)(d)

    3,501,571   
  785     

California Baptist Univ., 6.50%, 11/1/21

    999,007   
  1,000     

Cottage Health, 5.00%, 11/1/40

    1,127,050   
  5,500     

Methodist Hospital Project, 6.625%, 8/1/29 (FHA)

    7,053,915   
  19,500     

Methodist Hospital Project, 6.75%, 2/1/38 (FHA)

    24,442,665   
  5,690     

Sutter Health, 6.00%, 8/15/42, Ser. A

    6,924,673   
  4,725     

Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A

    5,164,756   
   

 

 

 
      179,394,885   
   

 

 

 
  Colorado – 1.8%    
  5,800     

Aurora Rev., Children’s Hospital Assoc., 5.00%, 12/1/40

    6,486,198   
  1,000     

Denver Health & Hospital Auth. Rev., 5.625%, 12/1/40

    1,123,260   
 

Health Facs. Auth. Rev., Ser. A,

   
  1,000     

American Baptist Homes, 5.90%, 8/1/37

    1,016,150   
  2,500     

Catholic Health Initiatives, 5.00%, 2/1/41

    2,845,675   
  500     

Evangelical Lutheran, 6.125%, 6/1/38 (Pre-refunded @ $100 6/1/14) (c)

    543,000   
  6,045     

Sisters of Charity of Leavenworth Health System, 5.00%, 1/1/40

    6,728,629   
  1,430     

Public Auth. for Colorado Energy Rev., 6.50%, 11/15/38

    2,066,436   
   

 

 

 
      20,809,348   
   

 

 

 
  Connecticut – 0.3%    
  1,250     

Harbor Point Infrastructure Improvement Dist., Tax Allocation, 7.875%, 4/1/39, Ser. A

    1,442,288   
  2,000     

State Health & Educational Fac. Auth. Rev., Hartford Healthcare, 5.00%, 7/1/41, Ser. A

    2,204,900   
   

 

 

 
      3,647,188   
   

 

 

 

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Florida – 4.5%    
$ 1,000     

Brevard Cnty. Health Facs. Auth. Rev., Health First, Inc. Project, 7.00%, 4/1/39

  $ 1,249,650   
 

Broward Cnty. Airport System Rev.,

   
  9,975     

5.00%, 10/1/42, Ser. Q-1

    11,578,082   
  600     

5.375%, 10/1/29, Ser. O

    709,620   
  8,500     

Broward Cnty. Water & Sewer Utility Rev., 5.25%, 10/1/34, Ser. A (i)

    10,067,400   
  1,000     

Clearwater Water & Sewer Rev., 5.25%, 12/1/39, Ser. A

    1,159,350   
  340     

Dev. Finance Corp. Rev., Renaissance Charter School, 6.50%, 6/15/21, Ser. A

    388,491   
  3,000     

Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System, 5.625%, 11/15/37, Ser. B

    3,545,970   
  6,795     

Jacksonville Health Facs. Auth. Rev., Ascension Health, 5.25%, 11/15/32, Ser. A

    6,882,452   
  3,000     

Leesburg Hospital Rev., Leesburg Regional Medical Center Project, 5.50%, 7/1/32

    3,002,790   
  500     

Sarasota Cnty. Health Facs. Auth. Rev., 5.75%, 7/1/37

    428,705   
  7,900     

State Board of Education, GO, 5.00%, 6/1/38, Ser. D (i)

    9,337,247   
  5,000     

Sumter Landing Community Dev. Dist. Rev., 4.75%, 10/1/35, Ser. A (NPFGC)

    5,060,250   
   

 

 

 
      53,410,007   
   

 

 

 
  Georgia – 0.4%    
  1,500     

Atlanta Airport Rev., 5.00%, 1/1/40, Ser. A

    1,728,030   
  2,775     

Medical Center Hospital Auth. Rev., Spring Harbor Green Island Project, 5.25%, 7/1/37

    2,784,935   
   

 

 

 
      4,512,965   
   

 

 

 
  Illinois – 7.3%    
 

Chicago, GO,

   
  10,000     

5.00%, 1/1/34, Ser. C (i)

    11,061,600   
  2,758     

Special Assessment, Lake Shore East, 6.625%, 12/1/22

    2,824,881   
  5,857     

Special Assessment, Lake Shore East, 6.75%, 12/1/32

    5,998,505   
  1,250     

Chicago Motor Fuel Tax Rev., 5.00%, 1/1/38, Ser. A (AGC)

    1,343,025   
  5,000     

Cicero, GO, 5.25%, 12/1/31 (NPFGC) (Pre-refunded @ $101, 12/1/12) (c)

    5,050,000   
 

Finance Auth. Rev.,

   
  2,500     

Christian Homes, Inc., 5.75%, 5/15/31, Ser. A

    2,634,825   
  250     

Leafs Hockey Club Project, 6.00%, 3/1/37, Ser. A (b)(f)

    84,615   
  700     

OSF Healthcare System, 7.125%, 11/15/37, Ser. A

    878,304   
  2,000     

Provena Health, 6.00%, 5/1/28, Ser. A

    2,334,980   
  5,000     

Univ. of Chicago, 5.50%, 7/1/37, Ser. B (i)

    6,101,150   
  37,000     

Sports Facs. Auth. Rev., 5.50%, 6/15/30 (AMBAC)

    40,489,840   
 

Village of Hillside, Tax Allocation, Mannheim Redev. Project,

   
  4,240     

6.55%, 1/1/20

    4,318,822   
  2,900     

7.00%, 1/1/28

    2,870,565   
   

 

 

 
      85,991,112   
   

 

 

 
  Indiana – 0.4%    
  1,500     

Finance Auth. Rev., Duke Energy Indiana, Inc., 6.00%, 8/1/39, Ser. B

    1,769,595   
 

Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc.,

   
  990     

5.80%, 9/1/47 (a)(d)

    1,034,421   
  1,900     

7.50%, 9/1/22

    2,506,480   
   

 

 

 
      5,310,496   
   

 

 

 

 

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Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Iowa – 1.8%    
 

Finance Auth. Rev.,

   
$ 250     

Deerfield Retirement Community, Inc., 5.50%, 11/15/27, Ser. A

  $ 234,023   
  1,075     

Deerfield Retirement Community, Inc., 5.50%, 11/15/37, Ser. A

    960,082   
  4,500     

Edgewater LLC Project, 6.75%, 11/15/42

    4,734,495   
  15,350     

Tobacco Settlement Auth. Rev., 5.60%, 6/1/34, Ser. B

    15,123,741   
   

 

 

 
      21,052,341   
   

 

 

 
  Kansas – 0.1%    
  500     

Dev. Finance Auth. Rev., Adventist Health, 5.75%, 11/15/38

    593,880   
  850     

Manhattan Rev., Meadowlark Hills Retirement, 5.00%, 5/15/36, Ser. A

    857,047   
   

 

 

 
      1,450,927   
   

 

 

 
  Kentucky – 0.1%    
  1,000     

Economic Dev. Finance Auth. Rev., Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A

    1,200,360   
   

 

 

 
  Louisiana – 3.6%    
 

Local Gov’t Environmental Facs. & Community Dev. Auth Rev.,

   
  450     

Westlake Chemical Corp., 6.50%, 11/1/35, Ser. A-2

    531,603   
  750     

Woman’s Hospital Foundation, 5.875%, 10/1/40, Ser. A

    871,485   
  1,000     

Woman’s Hospital Foundation, 6.00%, 10/1/44, Ser. A

    1,166,740   
 

Public Facs. Auth. Rev., Ochsner Clinic Foundation Project,

   
  3,300     

5.50%, 5/15/47, Ser. B

    3,524,565   
  2,000     

6.50%, 5/15/37

    2,445,160   
  33,395     

Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B

    34,328,056   
   

 

 

 
      42,867,609   
   

 

 

 
  Maryland – 0.9%    
 

Health & Higher Educational Facs. Auth. Rev.,

   
  1,000     

Adventist Healthcare, 5.75%, 1/1/25, Ser. A

    1,011,780   
  1,400     

Charlestown Community, 6.25%, 1/1/41

    1,621,718   
  1,010     

King Farm Presbyterian Community, 5.30%, 1/1/37, Ser. A

    995,102   
  2,380     

Medstar Health, 5.00%, 8/15/41

    2,677,786   
  4,050     

Washington Cnty. Hospital, 6.00%, 1/1/43

    4,400,973   
   

 

 

 
      10,707,359   
   

 

 

 
  Massachusetts – 0.9%    
 

Dev. Finance Agcy. Rev.,

   
  4,610     

Adventcare Project, 6.75%, 10/15/37, Ser. A

    4,896,834   
  580     

Adventcare Project, 7.625%, 10/15/37

    666,530   
  1,000     

Foxborough Regional Charter School, 7.00%, 7/1/42, Ser. A

    1,158,190   
  2,900     

State College Building Auth. Rev., 5.50%, 5/1/39, Ser. A

    3,464,978   
   

 

 

 
      10,186,532   
   

 

 

 

 

10   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Michigan – 2.7%    
$ 1,000     

Detroit, GO, 5.25%, 11/1/35

  $ 1,122,850   
  5,000     

Detroit Water and Sewerage Department Rev., 5.25%, 7/1/39, Ser. A

    5,560,100   
  5,000     

Detroit Water Supply System Rev., 5.25%, 7/1/41, Ser. A

    5,572,500   
  800     

Public Educational Facs. Auth. Rev., Bradford Academy, 6.50%, 9/1/37 (a)(d)

    545,952   
  3,000     

Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 8.25%, 9/1/39

    3,909,240   
 

State Hospital Finance Auth. Rev., Oakwood Group, Ser. A (c),

   
  3,000     

5.75%, 4/1/32 (Pre-refunded @ $100 4/1/13)

    3,053,610   
  1,925     

6.00%, 4/1/22 (Pre-refunded @ $100 4/1/13)

    1,960,940   
  10,510     

Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A

    9,609,818   
   

 

 

 
      31,335,010   
   

 

 

 
  Minnesota – 0.6%    
  150     

Duluth Housing & Redev. Auth. Rev., 5.875%, 11/1/40, Ser. A

    155,307   
  1,500     

Minneapolis Rev., Providence Project, 5.75%, 10/1/37, Ser. A

    1,521,270   
 

North Oaks Rev., Presbyterian Homes North Oaks,

   
  2,640     

6.00%, 10/1/33

    2,826,278   
  1,530     

6.125%, 10/1/39

    1,642,073   
  500     

Oronoco Rev., Wedum Shorewood Campus Project, 5.40%, 6/1/41

    503,465   
  400     

St. Louis Park Rev., Nicollett Health Services, 5.75%, 7/1/39

    462,836   
   

 

 

 
      7,111,229   
   

 

 

 
  Mississippi – 0.0%    
  250     

Dev. Bank Special Obligation Rev., Capital Projects and Equipment Acquisition,
5.00%, 7/1/24, Ser. A-2 (AMBAC)

    264,413   
   

 

 

 
  Missouri – 0.1%    
  715     

Lee’s Summit, Tax Allocation, Summit Fair Project, 5.625%, 10/1/23

    768,546   
   

 

 

 
  Nevada – 0.9%    
  10,000     

Clark Cnty., GO, 4.75%, 11/1/35 (FGIC-NPFGC) (i)

    10,696,200   
   

 

 

 
  New Hampshire – 0.2%    
  2,000     

Business Finance Auth. Rev., Elliot Hospital, 6.125%, 10/1/39, Ser. A

    2,288,640   
  360     

Health & Education Facs. Auth. Rev., Catholic Medical Center, 6.125%, 7/1/32, Ser. A

    364,136   
   

 

 

 
      2,652,776   
   

 

 

 
  New Jersey – 4.9%    
  950     

Burlington Cnty. Bridge Commission Rev., The Evergreens Project, 5.625%, 1/1/38

    986,603   
 

Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project,

   
  4,000     

5.75%, 10/1/21

    4,428,000   
  11,405     

5.75%, 4/1/31

    13,000,902   
 

Economic Dev. Auth. Rev.,

   
  525     

Arbor Glen, 6.00%, 5/15/28, Ser. A

    524,995   
  2,000     

MSU Student Housing Project, 5.875%, 6/1/42

    2,269,660   
 

Health Care Facs. Financing Auth. Rev.,

   
  1,500     

AHS Hospital Corp., 6.00%, 7/1/37

    1,900,155   

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     11   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  New Jersey (continued)    
$ 1,500     

St. Peters Univ. Hospital, 5.75%, 7/1/37

  $ 1,603,635   
  2,000     

State Turnpike Auth. Rev., 5.25%, 1/1/40, Ser. E

    2,315,360   
 

Tobacco Settlement Financing Corp. Rev., Ser. 1-A,

   
  3,300     

4.75%, 6/1/34

    2,982,507   
  11,305     

5.00%, 6/1/41

    10,211,241   
  15,000     

Transportation Trust Fund Auth. Rev., 5.00%, 6/15/42, Ser. B

    17,303,400   
   

 

 

 
      57,526,458   
   

 

 

 
  New Mexico – 0.2%    
  2,000     

Farmington Pollution Control Rev., 5.90%, 6/1/40, Ser. D

    2,256,220   
   

 

 

 
  New York – 13.8%    
  1,200     

Erie Cnty. Industrial Dev. Agcy. Rev., Orchard Park, Inc. Project, 6.00%, 11/15/36, Ser. A

    1,234,656   
  29,500     

Hudson Yards Infrastructure Corp. Rev., 5.25%, 2/15/47, Ser. A

    34,593,175   
 

Liberty Dev. Corp. Rev.,

   
  1,000     

5.125%, 1/15/44

    1,128,990   
  2,500     

5.625%, 7/15/47

    2,862,250   
  1,250     

Bank of America Tower at One Bryant Park Project, 6.375%, 7/15/49

    1,485,700   
  10,000     

Goldman Sachs Headquarters, 5.25%, 10/1/35 (i)

    12,463,000   
  1,505     

Goldman Sachs Headquarters, 5.25%, 10/1/35

    1,875,682   
  3,880     

Metropolitan Transportation Auth. Rev., 5.00%, 11/15/36, Ser. D

    4,461,767   
  1,100     

Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A

    718,619   
 

New York City Municipal Water Finance Auth. Water & Sewer Rev.,

   
  2,830     

5.00%, 6/15/37, Ser. D (i)

    3,100,661   
  4,000     

Second Generation Resolutions, 4.75%, 6/15/35, Ser. DD (i)

    4,492,320   
  2,000     

Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1

    2,326,880   
 

New York Liberty Dev. Corp. Rev.,

   
  10,000     

1 World Trade Center Project, 5.00%, 12/15/41

    11,692,000   
  54,000     

4 World Trade Center Project, 5.75%, 11/15/51

    66,286,620   
  1,750     

State Dormitory Auth. Rev., The New School, 5.50%, 7/1/40

    2,050,807   
  10,005     

State Thruway Auth. Rev., 5.00%, 1/1/42, Ser. I

    11,661,528   
   

 

 

 
      162,434,655   
   

 

 

 
  North Carolina – 0.1%    
 

Medical Care Commission Rev.,

   
  550     

Salemtowne, 5.10%, 10/1/30

    565,912   
  1,000     

Village at Brookwood, 5.25%, 1/1/32

    1,008,700   
   

 

 

 
      1,574,612   
   

 

 

 
  North Dakota – 0.3%    
  3,710     

Stark Cnty. Healthcare Rev., Benedictine Living Communities, 6.75%, 1/1/33

    4,073,840   
   

 

 

 
  Ohio – 1.2%    
  4,000     

Hamilton Cnty. Rev., Christ Hospital Project, 5.00%, 6/1/42

    4,349,480   
  3,900     

Hamilton Cnty. Sales Tax Rev., 5.00%, 12/1/30, Ser. A

    4,517,214   

 

12   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Ohio (continued)    
$ 1,000     

Higher Educational Fac. Commission Rev., Univ. Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A (Pre-refunded @ $100, 1/15/15) (c)

  $ 1,132,900   
  1,000     

Montgomery Cnty. Rev., Miami Valley Hospital, 6.25%, 11/15/39, Ser. A

    1,071,510   
  3,000     

State Rev., Cleveland Clinic Health System, 5.50%, 1/1/39, Ser. B

    3,443,940   
   

 

 

 
      14,515,044   
   

 

 

 
  Oregon – 0.2%    
  1,000     

Clackamas Cnty. Hospital Fac. Auth. Rev., Legacy Health System, 5.50%, 7/15/35, Ser. A

    1,138,590   
  1,155     

State Department of Administrative Services, CP, 5.25%, 5/1/39, Ser. A

    1,309,712   
   

 

 

 
      2,448,302   
   

 

 

 
  Pennsylvania – 4.7%    
  10,000     

Berks Cnty. Municipal Auth. Rev., Reading Hospital Medical Center, 5.00%, 11/1/44, Ser. A

    11,382,100   
 

Cumberland Cnty. Municipal Auth. Rev., Messiah Village Project, Ser. A,

   
  750     

5.625%, 7/1/28

    799,515   
  670     

6.00%, 7/1/35

    717,999   
  3,250     

Harrisburg Auth. Rev., Harrisburg Univ. of Science, 6.00%, 9/1/36, Ser. B (f)

    2,609,685   
 

Higher Educational Facs. Auth. Rev.,

   
  850     

Edinboro Univ. Foundation, 6.00%, 7/1/43

    970,819   
  400     

Thomas Jefferson Univ., 5.00%, 3/1/40

    451,412   
  500     

Luzerne Cnty. Industrial Dev. Auth. Rev., Pennsylvania American Water Co., 5.50%, 12/1/39

    569,830   
  8,500     

Montgomery Cnty. Industrial Dev. Auth. Rev., New Regional Medical Center, 5.375%, 8/1/38 (FHA)

    10,049,890   
  17,000     

Philadelphia, GO, 5.25%, 12/15/32, Ser. A (AGM)

    19,244,850   
  6,000     

Philadelphia Hospitals & Higher Education Facs. Auth. Rev., Temple Univ. Health System, 5.625%, 7/1/42, Ser. A

    6,633,120   
  500     

Philadelphia Water & Sewer Rev., 5.25%, 1/1/36, Ser. A

    568,555   
  1,000     

Westmoreland Cnty. Industrial Dev. Auth. Rev., Excela Health Project, 5.125%, 7/1/30

    1,096,100   
   

 

 

 
      55,093,875   
   

 

 

 
  Puerto Rico – 0.5%    
  5,000     

Sales Tax Financing Corp. Rev., 5.25%, 8/1/41, Ser. C

    5,387,900   
   

 

 

 
  Rhode Island – 4.9%    
  56,200     

Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A

    57,480,236   
   

 

 

 
  South Carolina – 1.3%    
  1,000     

Greenwood Cnty. Rev., Self Regional Healthcare, 5.375%, 10/1/39

    1,113,510   
  13,850     

Jobs-Economic Dev. Auth. Rev., Bon Secours Health System, 5.625%, 11/15/30, Ser. B

    13,903,322   
   

 

 

 
      15,016,832   
   

 

 

 
  Tennessee – 1.2%    
  1,750     

Claiborne Cnty. Industrial Dev. Board Rev., Lincoln Memorial Univ. Project, 6.625%, 10/1/39

    2,002,682   
  1,000     

Johnson City Health & Educational Facs. Board Rev., Mountain States Health Alliance, 6.00%, 7/1/38, Ser. A

    1,210,880   

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     13   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Tennessee (continued)    
$ 500     

Sullivan Cnty. Health Educational & Housing Facs. Board Rev., Wellmont Health Systems Project, 5.25%, 9/1/36, Ser. C

  $ 534,370   
 

Tennessee Energy Acquisition Corp. Rev., Ser. C,

   
  3,000     

5.00%, 2/1/23

    3,476,220   
  6,000     

5.00%, 2/1/27

    7,078,680   
   

 

 

 
      14,302,832   
   

 

 

 
  Texas – 12.4%    
  130     

Aubrey Independent School Dist., GO, 5.50%, 2/15/33 (GTD-PSF)

    137,517   
  6,500     

Brazos Cnty. Health Facs. Dev. Corp. Rev., 5.375%, 1/1/32

    6,575,270   
  2,500     

Dallas Rev., Dallas Civic Center, 5.25%, 8/15/38 (AGC)

    2,863,225   
  10,000     

Dallas/Fort Worth International Airport Rev., 5.00%, 11/1/33, Ser. G

    11,611,800   
 

Harris Cnty. Cultural Education Facs. Finance Corp. Rev.,

   
  2,000     

Baylor College of Medicine, 5.00%, 11/15/37

    2,319,300   
  3,750     

Texas Children’s Hospital Project, 5.25%, 10/1/29

    4,528,837   
  12,700     

Texas Children’s Hospital Project, 5.50%, 10/1/39

    14,944,852   
  700     

HFDC of Central Texas, Inc. Rev.,, Village at Gleannloch Farms, 5.50%, 2/15/37, Ser. A

    701,232   
  5,000     

Municipal Gas Acquisition & Supply Corp. III Rev., 5.00%, 12/15/26 (e)

    5,652,200   
 

North Harris Cnty. Regional Water Auth. Rev.,

   
  10,300     

5.25%, 12/15/33

    11,654,038   
  10,300     

5.50%, 12/15/38

    11,691,942   
 

North Texas Tollway Auth. Rev.,

   
  5,750     

5.00%, 1/1/38

    6,433,272   
  1,300     

5.50%, 9/1/41, Ser. A

    1,592,955   
  5,000     

5.625%, 1/1/33, Ser. B

    5,613,150   
  1,200     

5.75%, 1/1/33, Ser. F

    1,354,776   
  1,920     

Private Activity Bond Surface Transportation Corp. Rev., 7.00%, 6/30/40

    2,412,845   
  2,000     

Sabine River Auth. Pollution Control Rev., TXU Energy, 5.20%, 5/1/28, Ser. C

    196,220   
  250     

San Juan Higher Education Finance Auth. Rev., 6.70%, 8/15/40, Ser. A

    297,408   
 

State, Mobility Fund, GO (i),

   
  10,025     

4.75%, 4/1/35, Ser. A

    10,801,536   
  17,500     

4.75%, 4/1/36

    19,258,400   
  1,000     

State Public Finance Auth. Rev., Charter School Finance Corp., 5.875%, 12/1/36, Ser. A

    1,087,330   
  3,000     

Tarrant Cnty. Cultural Education Facs. Finance Corp. Rev., Baylor Health Care Systems Project, 6.25%, 11/15/29

    3,681,000   
  15,300     

Texas Municipal Gas Acquisition & Supply Corp. I Rev., 6.25%, 12/15/26, Ser. D

    19,833,237   
  1,000     

Wise Cnty. Rev., Parker Cnty. Junior College Dist., 8.00%, 8/15/34

    1,171,570   
   

 

 

 
      146,413,912   
   

 

 

 
  Virginia – 0.2%    
  1,000     

Fairfax Cnty. Industrial Dev. Auth. Rev., Inova Health Systems, 5.50%, 5/15/35, Ser. A

    1,168,450   
  2,050     

James City Cnty. Economic Dev. Auth. Rev., United Methodist Homes, 5.50%, 7/1/37, Ser. A

    1,718,823   
   

 

 

 
      2,887,273   
   

 

 

 

 

14   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Washington – 1.5%    
 

Health Care Facs. Auth. Rev.,

   
$ 1,300     

Multicare Health Systems, 6.00%, 8/15/39, Ser. B (AGC)

  $ 1,544,426   
  1,000     

Seattle Cancer Care Alliance, 7.375%, 3/1/38

    1,254,300   
  13,000     

Virginia Mason Medical Center, 6.125%, 8/15/37, Ser. A

    14,429,090   
   

 

 

 
      17,227,816   
   

 

 

 
  West Virginia – 0.2%    
  2,000     

Hospital Finance Auth. Rev., Highland Hospital, 9.125%, 10/1/41

    2,461,760   
   

 

 

 
  Wisconsin – 0.1%    
  1,000     

Health & Educational Facs. Auth. Rev., Prohealth Care, Inc., 6.625%, 2/15/39

    1,204,730   
   

 

 

 
 

Total Municipal Bonds & Notes (cost-$1,012,162,873)

    1,154,830,465   
   

 

 

 
     

 

VARIABLE RATE NOTES – 2.1%

   
  California – 0.5%    
  5,000     

Health Facs. Financing Auth. Rev., 9.457%, 11/15/36, Ser. 3193 (a)(d)(g)(h)

    6,475,350   
   

 

 

 
  Florida – 0.2%    
  1,830     

Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System,
5.00%, 11/15/31, Ser. C (h)

    1,941,941   
   

 

 

 
  Illinois – 0.6%    
  6,000     

Chicago, GO, 11.648%, 1/1/34, Ser. 3190 (a)(d)(g)(h)

    7,568,760   
   

 

 

 
  Texas – 0.6%    
  5,365     

State, GO, 8.944%, 4/1/37, Ser. 3197 (a)(d)(g)(h)

    6,810,224   
   

 

 

 
  West Virginia – 0.2%    
  2,000     

Economic Dev. Auth. Rev., Appalachian Power, 5.375%, 12/1/38, Ser. A (h)

    2,237,200   
   

 

 

 
 

Total Variable Rate Notes (cost-$20,281,215)

    25,033,475   
   

 

 

 
  Total Investments (cost-$1,032,444,088) – 100.0%   $ 1,179,863,940   
   

 

 

 

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     15   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Industry classification of portfolio holdings as a percentage of total investments at November 30, 2012 was as follows:

 

Revenue Bonds

   

Health, Hospital & Nursing Home Revenue

    26.5  

Tobacco Settlement Funded

    13.6     

Miscellaneous Taxes

    6.4     

Industrial Revenue

    6.3     

Natural Gas Revenue

    5.7     

Miscellaneous Revenue

    4.3     

Water Revenue

    4.3     

Private Airport & Marina Revenue

    3.4     

Highway Revenue Tolls

    2.9     

Lease (Appropriation)

    2.7     

College & University Revenue

    2.7     

Electric Power & Light Revenue

    2.2     

Sales Tax Revenue

    0.8     

Sewer Revenue

    0.5     

Transit Revenue

    0.4     

Resource Recovery Revenue

    0.2     

Fuel Sales Tax Revenue

    0.1     

Local or Guaranteed Housing

    0.1     

Lease Revenue

    0.1     
 

 

 

   

Total Revenue Bonds

      83.2

General Obligation

      13.3   

Special Assessment

      2.2   

Tax Allocation

      0.9   

Certificates of Participation

      0.3   

Special Tax

      0.1   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

 

16   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Fund II Notes to Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $25,936,278, representing 2.2% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  

 

(d)   144A – Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  

 

(e)   When-issued or delayed-delivery. To be settled/delivered after November 30, 2012.  

 

(f)   In default.  

 

(g)   Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(h)   Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(i)   Residual Interest Bonds held in Trust – Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  

 

(j)   Step Bond – Coupon is a fixed rate for an initial period then resets at a specific date and rate.  

 

(k)   Fair Value Measurement  

 

     Level 1 –
Quoted
Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
11/30/12
 
Investments in Securities – Assets        

Municipal Bonds & Notes

         $ 1,154,830,465             $ 1,154,830,465   

Variable Rate Notes

           25,033,475               25,033,475   
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

         $ 1,179,863,940             $ 1,179,863,940   
 

 

 

   

 

 

   

 

 

   

 

 

 

There were no transfers between Levels 1 and 2 during the six months ended November 30, 2012.

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
CP     -      Certificates of Participation
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GO     -      General Obligation Bond
GTD     -      Guaranteed
IBC     -      Insurance Bond Certificate
NPFGC     -      insured by National Public Finance Guarantee Corp.
PSF     -      Public School Fund

 

See accompanying Notes to Financial Statements       11.30.12       PIMCO Municipal Income Funds II Semi-Annual Report     17   


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

CALIFORNIA MUNICIPAL BONDS & NOTES – 86.8%

   
$ 2,000     

Alhambra Rev., Atherton Baptist Homes, 7.625%, 1/1/40, Ser. A

  $ 2,239,920   
  20,000     

Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/39 (h)

    22,487,200   
 

Chabot-Las Positas Community College Dist., GO, Ser. C,

   
  17,305     

zero coupon, 8/1/36 (AMBAC)

    5,305,540   
  5,000     

zero coupon, 8/1/37 (AMBAC)

    1,452,500   
  15,000     

zero coupon, 8/1/43 (AMBAC)

    3,193,800   
  1,000     

Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B

    1,196,370   
  300     

City & Cnty. of San Francisco, Capital Improvement Projects, CP, 5.25%, 4/1/31, Ser. A

    341,373   
 

Corona-Norco Unified School Dist. Public Financing Auth., Special Tax, Ser. A,

   
  1,000     

6.00%, 9/1/25

    1,001,310   
  4,150     

6.10%, 9/1/32

    4,153,652   
  9,145     

Coronado Community Dev. Agcy., Tax Allocation, 4.875%, 9/1/35 (AMBAC)

    9,383,501   
  25,000     

Desert Community College Dist., GO, zero coupon, 8/1/46, Ser. C (AGM)

    4,105,500   
  3,000     

Dinuba Financing Auth. Rev., Public Works Projects, 5.10%, 8/1/32 (NPFGC)

    3,066,150   
  8,300     

El Dorado Irrigation Dist. & El Dorado Water Agcy., CP, 5.75%, 8/1/39, Ser. A (AGC)

    8,980,019   
  1,500     

Foothill-Eastern Transportation Corridor Agcy. Rev., 5.875%, 1/15/27 (IBC-NPFGC)

    1,555,365   
  1,440     

Fremont Community Facs. Dist. No. 1, Special Tax, Pacific Commons, 5.30%, 9/1/30

    1,469,635   
 

Golden State Tobacco Securitization Corp. Rev.,

   
  13,885     

5.00%, 6/1/45 (AMBAC-TCRS)

    14,662,421   
  3,500     

5.00%, 6/1/45, Ser. A

    3,695,965   
  6,000     

5.00%, 6/1/45, Ser. A (FGIC-TCRS)

    6,335,940   
  8,500     

5.125%, 6/1/47, Ser. A-1

    7,142,720   
  29,415     

5.75%, 6/1/47, Ser. A-1

    27,539,794   
 

Health Facs. Financing Auth. Rev.,

   
  500     

Adventist Health System, 5.00%, 3/1/33, Ser. A

    503,995   
  250     

Adventist Health System, 5.75%, 9/1/39, Ser. A

    297,020   
  3,000     

Catholic Healthcare West, 6.00%, 7/1/39, Ser. A

    3,574,560   
  1,000     

Children’s Hospital of Los Angeles, 5.00%, 11/15/34, Ser. A

    1,121,470   
  1,200     

Children’s Hospital of Los Angeles, 5.25%, 7/1/38 (AGM)

    1,301,208   
  500     

Children’s Hospital of Orange Cnty., 6.50%, 11/1/38, Ser. A

    620,735   
  3,700     

Stanford Hospital, 5.25%, 11/15/40, Ser. A-2

    4,345,613   
  1,000     

Sutter Health, 5.00%, 8/15/35, Ser. D

    1,154,500   
  4,220     

Sutter Health, 5.00%, 11/15/42, Ser. A (IBC-NPFGC)

    4,655,630   
  12,195     

Sutter Health, 5.25%, 11/15/46, Ser. A (h)

    13,509,987   
  4,500     

Imperial Irrigation Dist. Rev., 5.00%, 11/1/41, Ser. B

    5,068,395   
  175     

Infrastructure & Economic Dev. Bank Rev., 5.25%, 2/1/38

    189,238   
  515     

Irvine Unified School Dist., Special Tax, 6.70%, 9/1/35

    582,913   
  1,000     

Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39

    1,139,530   
  500     

Lancaster Redev. Agcy. Rev., Capital Improvements Projects, 5.90%, 12/1/35

    550,410   
  2,000     

Long Beach Airport Rev., 5.00%, 6/1/40, Ser. A

    2,216,960   

 

18   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
$ 7,500     

Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, 5.50%, 11/15/37, Ser. A

  $ 9,319,800   
  10,000     

Long Beach Unified School Dist., GO, 5.25%, 8/1/33, Ser. A (h)

    11,649,500   
 

Los Angeles Department of Water & Power Rev.,

   
  15,000     

4.75%, 7/1/30, Ser. A-2 (AGM) (h)

    16,036,800   
  500     

5.00%, 7/1/43, Ser. B

    593,180   
  11,000     

Los Angeles Unified School Dist., GO, 5.00%, 1/1/34, Ser. I

    12,743,610   
  3,200     

M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B

    4,578,560   
  10,000     

Manteca Redev. Agcy., Tax Allocation, 5.00%, 10/1/36 (AMBAC)

    10,017,500   
  5,330     

Manteca Unified School Dist. No. 89-2, Special Tax, 5.00%, 9/1/29, Ser. C (NPFGC)

    5,353,239   
  4,000     

Merced Cnty., Juvenile Justice Correctional Fac., CP, 5.00%, 6/1/32 (AMBAC)

    4,007,040   
  5,000     

Metropolitan Water Dist. of Southern California Rev., 5.00%, 7/1/37, Ser. A (h)

    5,760,900   
  1,240     

Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B

    1,482,780   
  5,000     

Oakland Unified School Dist., Alameda Cnty., GO, 6.125%, 8/1/29, Ser. A

    5,776,200   
  4,750     

Palomar Pomerado Health, CP, 6.75%, 11/1/39

    5,472,380   
  10,000     

Placentia-Yorba Linda Unified School Dist., CP, 5.00%, 10/1/32 (FGIC-NPFGC)

    10,437,600   
  1,500     

Pollution Control Financing Auth. Rev., American Water Capital Corp. Project,
5.25%, 8/1/40 (a)(d)

    1,626,630   
 

Poway Unified School Dist., GO,

   
  27,000     

zero coupon, 8/1/40

    7,491,420   
  16,000     

zero coupon, 8/1/46

    3,317,440   
  1,950     

Riverside, CP, 5.00%, 9/1/33 (AMBAC) (Pre-refunded @ $100, 9/1/13) (c)

    2,019,069   
  2,000     

Roseville Redev. Agcy., Tax Allocation, 5.00%, 9/1/32, Ser. B (NPFGC)

    2,017,800   
  1,375     

Ross Valley School Dist., GO, 5.00%, 8/1/42, Ser. B

    1,629,334   
  1,000     

San Diego Public Facs. Financing Auth. Rev., 5.25%, 5/15/39, Ser. A

    1,156,930   
  4,000     

San Diego Public Facs. Financing Auth. Water Rev., 5.25%, 8/1/38, Ser. A

    4,594,840   
  2,800     

San Diego Regional Building Auth. Rev., Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A

    3,199,868   
  2,800     

San Diego Unified School Dist., GO, 4.75%, 7/1/27, Ser. D-2 (AGM)

    3,037,860   
  1,000     

San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36

    1,224,140   
  1,300     

San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A

    1,500,070   
  1,260     

Santa Cruz Cnty., CP, 5.25%, 8/1/32

    1,290,467   
  1,500     

Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community, 7.00%, 9/1/36, Ser. A

    1,792,740   
 

State, GO,

   
  2,500     

5.00%, 9/1/31

    2,805,300   
  10,000     

6.00%, 4/1/38

    12,324,000   
 

State Public Works Board Rev.,

   
  3,000     

5.75%, 10/1/30, Ser. G-1

    3,570,630   
  2,000     

California State Univ., 6.00%, 11/1/34, Ser. J

    2,427,240   
  2,000     

Judicial Council Projects, 5.00%, 12/1/29, Ser. D

    2,314,820   
  7,915     

Regents Univ., 5.00%, 3/1/33, Ser. A

    8,843,588   

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     19   


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
 

Statewide Communities Dev. Auth. Rev.,

   
$ 10,620     

Bentley School, zero coupon, 7/1/50 (b)

  $ 533,761   
  3,760     

Bentley School, 7.00%, 7/1/40, Ser. A

    4,115,546   
  1,520     

Catholic Healthcare West, 5.50%, 7/1/31, Ser. D

    1,713,025   
  1,520     

Catholic Healthcare West, 5.50%, 7/1/31, Ser. E

    1,713,025   
  250     

Huntington Park Charter School Project, 5.15%, 7/1/30, Ser. A

    235,380   
  1,250     

Huntington Park Charter School Project, 5.25%, 7/1/42, Ser. A

    1,140,150   
  500     

International School of the Peninsula Project, 5.00%, 11/1/29

    458,250   
  1,000     

Lancer Student Housing Project, 7.50%, 6/1/42

    1,158,060   
  9,700     

Los Angeles Jewish Home, 5.50%, 11/15/33 (CA Mtg. Ins.)

    9,867,616   
  2,400     

Methodist Hospital Project, 6.625%, 8/1/29 (FHA)

    3,078,072   
  8,800     

Methodist Hospital Project, 6.75%, 2/1/38 (FHA)

    11,030,536   
  3,700     

St. Joseph Health System, 5.75%, 7/1/47, Ser. A (FGIC)

    4,181,962   
  5,600     

Sutter Health, 6.00%, 8/15/42, Ser. A

    6,815,144   
  4,500     

Univ. of California Irvine E. Campus, 5.375%, 5/15/38

    5,014,665   
  1,365     

Windrush School, 5.50%, 7/1/37 (b)(e)

    723,450   
  1,800     

Tobacco Securitization Agcy. Rev., Stanislaus Cnty., 5.875%, 6/1/43, Ser. A

    1,800,144   
  3,100     

Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A

    3,388,517   
  1,000     

Tustin Unified School Dist., Special Tax, 6.00%, 9/1/40, Ser. 2006-1

    1,062,770   
 

Univ. of California Rev.,

   
  5,000     

4.75%, 5/15/35, Ser. G (FGIC-NPFGC) (h)

    5,132,250   
  5,650     

4.75%, 5/15/38, Ser. B

    5,816,166   
  15,000     

5.00%, 5/15/42, Ser. G

    17,790,150   
   

 

 

 
 

Total California Municipal Bonds & Notes (cost-$364,121,154)

    428,322,753   
   

 

 

 
     

 

CALIFORNIA VARIABLE RATE NOTES (a)(d)(f)(g) – 7.0%

   
  6,035     

Desert Community College Dist., GO, 9.457%, 8/1/32, Ser. 3016-1 (AGC)

    7,479,417   
 

JPMorgan Chase Putters/Drivers Trust Rev.,

   
  7,500     

9.459%, 5/15/40, Ser. 3838

    9,782,100   
  3,000     

13.856%, 11/15/19, Ser. 4039 (b)(i)

   
 

(acquisition cost-$3,572,400; purchased 1/19/12)

    4,162,170   
  4,000     

Los Angeles Community College Dist., GO, 13.84%, 8/1/33, Ser. 3096

    5,771,240   
  5,000     

San Diego Community College Dist., GO, 9.901%, 2/1/17

    7,107,950   
   

 

 

 
 

Total California Variable Rate Notes (cost-$25,846,899)

    34,302,877   
   

 

 

 
     

 

OTHER MUNICIPAL BONDS & NOTES – 6.2%

   
  Arizona – 1.9%    
  8,000     

Salt Verde Financial Corp. Rev., 5.00%, 12/1/37

    9,671,520   
   

 

 

 
  New Jersey – 0.8%    
 

Tobacco Settlement Financing Corp. Rev., Ser. 1-A,

   
  1,300     

4.75%, 6/1/34

    1,174,927   
  3,000     

5.00%, 6/1/41

    2,709,750   
   

 

 

 
      3,884,677   
   

 

 

 

 

20   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  New York – 0.3%    
$ 1,250     

Liberty Dev. Corp. Rev., Goldman Sachs Headquarters, 5.25%, 10/1/35

  $ 1,557,875   
   

 

 

 
  Puerto Rico – 0.9%    
 

Sales Tax Financing Corp. Rev.,

   
  1,600     

5.00%, 8/1/40, Ser. A (AGM) (h)

    1,704,784   
  2,500     

5.25%, 8/1/43, Ser. A-1

    2,694,350   
   

 

 

 
      4,399,134   
   

 

 

 
  Rhode Island – 2.3%    
  11,000     

Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A

    11,250,580   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$24,997,268)

    30,763,786   
   

 

 

 
  Total Investments (cost-$414,965,321) – 100.0%   $ 493,389,416   
   

 

 

 

 

 

Industry classification of portfolio holdings as a percentage of total investments at November 30, 2012 was as follows:   

Revenue Bonds

   

Health, Hospital & Nursing Home Revenue

    16.1  

Tobacco Settlement Funded

    15.5     

College & University Revenue

    8.2     

Natural Gas Revenue

    5.0     

Highway Revenue Tolls

    4.9     

Electric Power & Light Revenue

    4.3     

Lease (Abatement)

    3.1     

Water Revenue

    2.5     

Private Airport & Marina Revenue

    2.4     

Private Schools

    1.2     

Local or Guaranteed Housing

    1.0     

Sales Tax Revenue

    0.9     

Miscellaneous Revenue

    0.3     

Lease Revenue

    0.3     

Hotel Occupancy Tax

    0.2     

Sewer Revenue

    0.2     
 

 

 

   

Total Revenue Bonds

      66.1

General Obligation

      19.6   

Certificates of Participation

      6.6   

Tax Allocation

      4.9   

Special Tax

      2.8   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     21   


Table of Contents

PIMCO California Municipal Income Fund II Notes to Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $35,929,507, representing 7.3% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  

 

(d)   144A – Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  

 

(e)   In default.  

 

(f)   Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(g)   Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(h)   Residual Interest Bonds held in Trust – Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  

 

(i)   Restricted. The aggregate acquisition cost of such security is $3,572,400. The aggregate market value is $4,162,170, representing 0.8% of total investments.  

 

(j)   Fair Value Measurement  

 

     Level 1 –
Quoted
Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
11/30/12
 
Investments in Securities – Assets        

California Municipal Bonds & Notes

         $ 427,599,303      $ 723,450      $ 428,322,753   

California Variable Rate Notes

           34,302,877               34,302,877   

Other Municipal Bonds & Notes

           30,763,786               30,763,786   
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

         $ 492,665,966      $ 723,450      $ 493,389,416   
 

 

 

   

 

 

   

 

 

   

 

 

 

There were no transfers between Levels 1 and 2 during the six months ended November 30, 2012.

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the six months ended November 30, 2012, was as follows:

 

     Beginning
Balance
5/31/12
    Purchases     Sales     Accrued
Discount/
(Premiums)
    Net
Realized
Gain/(Loss)
    Net Change
in Unrealized
Appreciation/
(Depreciation)
    Transfers
into
Level 3
    Transfers
out of
Level 3
    Ending
Balance
11/30/12
 

Investments in Securities – Assets

  

               

California Municipal Bonds & Notes

  $ 941,850                                  $ (218,400                 $ 723,450   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO California Municipal Income Fund II Notes to Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at November 30, 2012.

 

     Ending
Balance at
11/30/12
    Valuation
Technique Used
   Unobservable
Inputs
   Input
Values
 
Investments in Securities – Assets          

California Municipal Bonds & Notes

  $ 723,450      Third-Party Pricing Vendor    Stale Pricing    $ 53.00   
 

 

 

         

The net change in unrealized appreciation/depreciation of Level 3 investments, which the Fund held at November 30, 2012, was $(218,400). Net change in unrealized depreciation is reflected on the Statements of Operations.

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
CA Mtg. Ins.     -      insured by California Mortgage Insurance
CP     -      Certificates of Participation
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GO     -      General Obligation Bond
IBC     -      Insurance Bond Certificate
NPFGC     -      insured by National Public Finance Guarantee Corp.
TCRS     -      Temporary Custodian Receipts

 

See accompanying Notes to Financial Statements       11.30.12       PIMCO Municipal Income Funds II Semi-Annual Report     23   


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

NEW YORK MUNICIPAL BONDS & NOTES – 90.3%

   
$ 1,000     

Chautauqua Cnty. Industrial Dev. Agcy. Rev., Dunkirk Power Project, 5.875%, 4/1/42

  $ 1,138,280   
  2,400     

Erie Cnty. Industrial Dev. Agcy. Rev., Orchard Park, Inc. Project, 6.00%, 11/15/36, Ser. A

    2,469,312   
  9,000     

Hudson Yards Infrastructure Corp. Rev., 5.75%, 2/15/47, Ser. A

    10,880,370   
 

Liberty Dev. Corp. Rev.,

   
  1,400     

5.625%, 7/15/47

    1,602,860   
  1,300     

Bank of America Tower at One Bryant Park Project, 6.375%, 7/15/49

    1,545,128   
  4,120     

Goldman Sachs Headquarters, 5.25%, 10/1/35 (g)

    5,134,756   
  3,000     

Goldman Sachs Headquarters, 5.25%, 10/1/35

    3,738,900   
  3,500     

Goldman Sachs Headquarters, 5.50%, 10/1/37

    4,537,400   
  500     

Long Island Power Auth. Rev., 5.00%, 9/1/34, Ser. A (AMBAC)

    523,040   
 

Metropolitan Transportation Auth. Rev.,

   
  3,000     

5.00%, 11/15/30, Ser. D

    3,618,540   
  2,000     

5.00%, 11/15/34, Ser. B

    2,299,040   
  5,000     

5.50%, 11/15/39, Ser. A

    5,737,400   
  7,000     

Monroe Cnty. Industrial Dev. Corp. Rev., Unity Hospital Rochester Project,
5.50%, 8/15/40 (FHA) (g)

    8,324,260   
  2,400     

Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A

    1,567,896   
  4,000     

New York City, GO, 5.00%, 3/1/33, Ser. I (Pre-refunded @ $100, 3/1/13) (c)

    4,045,520   
  1,500     

New York City Health & Hospital Corp. Rev., 5.00%, 2/15/30, Ser. A

    1,730,520   
 

New York City Industrial Dev. Agcy. Rev.,

   
  975     

Eger Harbor Project, 4.95%, 11/20/32, Ser. A (GNMA)

    987,421   
  1,415     

Liberty Interactive Corp., 5.00%, 9/1/35

    1,453,120   
  1,500     

Pilot Queens Baseball Stadium, 6.50%, 1/1/46 (AGC)

    1,783,005   
  1,500     

United Jewish Appeal Federation Project, 5.00%, 7/1/27, Ser. A

    1,594,080   
  750     

Yankee Stadium, 5.00%, 3/1/31 (FGIC)

    800,730   
  1,900     

Yankee Stadium, 5.00%, 3/1/36 (NPFGC)

    2,010,580   
  4,900     

Yankee Stadium, 7.00%, 3/1/49 (AGC)

    6,023,031   
 

New York City Municipal Water Finance Auth. Water & Sewer Rev.,

   
  1,000     

5.25%, 6/15/40, Ser. EE

    1,184,510   
  500     

Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1

    581,720   
 

New York City Transitional Finance Auth. Rev.,

   
  10     

5.00%, 11/1/27, Ser. B

    10,033   
  4,850     

5.00%, 5/1/39, Ser. F-1

    5,797,690   
  5,000     

5.25%, 1/15/39, Ser. S-3

    5,671,500   
 

New York Liberty Dev. Corp. Rev.,

   
  3,000     

1 World Trade Center Project, 5.00%, 12/15/41

    3,507,600   
  10,000     

4 World Trade Center Project, 5.75%, 11/15/51

    12,275,300   
  1,000     

Onondaga Cnty. Rev., Syracuse Univ. Project, 5.00%, 12/1/36

    1,175,500   
  1,400     

Port Auth. of New York & New Jersey Rev., JFK International Air Terminal, 6.00%, 12/1/36

    1,659,224   

 

24   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
 

State Dormitory Auth. Rev.,

   
$ 3,000     

5.00%, 3/15/38, Ser. A

  $ 3,541,980   
  2,500     

5.00%, 2/15/40, Ser. D

    2,954,150   
  4,000     

5.00%, 7/1/42, Ser. A

    4,727,000   
  7,490     

5.50%, 5/15/31, Ser. A (AMBAC)

    10,335,002   
  2,600     

Catholic Health of Long Island, 5.10%, 7/1/34

    2,697,006   
  1,500     

Fordham Univ., 5.50%, 7/1/36, Ser. A

    1,791,570   
  2,750     

Memorial Sloan-Kettering Cancer Center, 5.00%, 7/1/35, Ser. 1

    2,992,330   
  2,000     

Memorial Sloan-Kettering Cancer Center, 5.00%, 7/1/36, Ser. A-1

    2,253,000   
  2,000     

Mount Sinai Hospital, 5.00%, 7/1/31, Ser. A

    2,245,660   
  2,100     

New York Univ., 5.00%, 7/1/38, Ser. A

    2,355,213   
  1,000     

New York Univ. Hospital Center, 5.625%, 7/1/37, Ser. B

    1,110,900   
  600     

North Shore-Long Island Jewish Health System, 5.50%, 5/1/37, Ser. A

    695,142   
  5,000     

Rochester General Hospital, 5.00%, 12/1/35 (Radian)

    5,142,350   
  3,000     

Teachers College, 5.50%, 3/1/39

    3,380,040   
  1,000     

The New School, 5.50%, 7/1/40

    1,171,890   
  3,000     

Yeshiva Univ., 5.125%, 7/1/34 (AMBAC)

    3,126,300   
  5,000     

State Environmental Facs. Corp. Rev., 5.125%, 6/15/38, Ser. A

    5,808,850   
 

State Thruway Auth. Rev.,

   
  1,000     

4.75%, 1/1/29, Ser. G (AGM)

    1,082,490   
  3,800     

5.00%, 1/1/42, Ser. I

    4,429,166   
  6,000     

State Urban Dev. Corp. Rev., 5.00%, 3/15/36, Ser. B-1 (g)

    7,166,220   
  5,000     

Triborough Bridge & Tunnel Auth. Rev., 5.25%, 11/15/34, Ser. A-2 (g)

    6,037,200   
  3,435     

Troy Capital Res. Corp. Rev., Rensselaer Polytechnic Institute, 5.125%, 9/1/40, Ser. A

    3,884,951   
  1,815     

Ulster Cnty. Industrial Dev. Agcy. Rev., 6.00%, 9/15/37, Ser. A (b)

    1,357,674   
  2,000     

Warren & Washington Cntys. Industrial Dev. Agcy. Rev., Glens Falls Hospital Project,
5.00%, 12/1/35, Ser. A (AGM)

    2,043,600   
  1,490     

Westchester Cnty. Healthcare Corp. Rev., 6.125%, 11/1/37, Ser. C-2

    1,769,345   
  1,000     

Yonkers Economic Dev. Corp. Rev., Charter School of Educational Excellence Project,
6.00%, 10/15/30, Ser. A

    1,064,270   
  600     

Yonkers Industrial Dev. Agcy. Rev., Sarah Lawrence College Project, 6.00%, 6/1/41, Ser. A

    690,150   
   

 

 

 
 

Total New York Municipal Bonds & Notes (cost-$168,040,968)

    191,261,715   
   

 

 

 
     

 

OTHER MUNICIPAL BONDS & NOTES – 6.6%

   
  Florida – 0.6%    
  1,000     

Clearwater Water & Sewer Rev., 5.25%, 12/1/39, Ser. A

    1,159,350   
   

 

 

 
  Louisiana – 0.6%    
  1,000     

East Baton Rouge Sewerage Commission Rev., 5.25%, 2/1/39, Ser. A

    1,188,600   
   

 

 

 
  Ohio – 0.6%    
  1,435     

Buckeye Tobacco Settlement Financing Auth. Rev., 5.875%, 6/1/47, Ser. A-2

    1,279,991   
   

 

 

 

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     25   


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Puerto Rico – 4.3%    
$ 5,675     

Children’s Trust Fund Rev., 5.625%, 5/15/43

  $ 5,676,703   
 

Sales Tax Financing Corp. Rev.,

   
  2,000     

5.00%, 8/1/40, Ser. A (AGM) (g)

    2,130,980   
  1,300     

5.25%, 8/1/43, Ser. A-1

    1,401,062   
   

 

 

 
      9,208,745   
   

 

 

 
  U. S. Virgin Islands – 0.5%    
  1,000     

Public Finance Auth. Rev., 6.00%, 10/1/39, Ser. A

    1,141,380   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$12,788,306)

    13,978,066   
   

 

 

 
     

 

NEW YORK VARIABLE RATE NOTES – 3.1%

   
  5,000     

JPMorgan Chase Putters/Drivers Trust Rev., 9.406%, 7/1/33, Ser. 3382 (a)(d)(e)(f)
(cost-$4,882,365)

    6,655,450   
   

 

 

 
  Total Investments (cost-$185,711,639) – 100.0%   $ 211,895,231   
   

 

 

 
Industry classification of portfolio holdings as a percentage of total investments at November 30, 2012 was as follows:   

Revenue Bonds

   

Health, Hospital & Nursing Home Revenue

    17.2  

College & University Revenue

    13.7     

Industrial Revenue

    10.7     

Income Tax Revenue

    9.2     

Miscellaneous Revenue

    8.7     

Transit Revenue

    5.5     

Highway Revenue Tolls

    5.4     

Miscellaneous Taxes

    5.1     

Lease (Abatement)

    4.9     

Recreational Revenue

    4.2     

Water Revenue

    4.1     

Tobacco Settlement Funded

    3.3     

Private Airport & Marina Revenue

    2.4     

Sales Tax Revenue

    1.7     

Economic Development Revenue

    0.7     

Sewer Revenue

    0.6     

Local or Guaranteed Housing

    0.5     

Electric Power & Light Revenue

    0.2     
 

 

 

   

Total Revenue Bonds

      98.1

General Obligation

      1.9   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

26   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO New York Municipal Income Fund II Notes to Schedule of Investments

November 30, 2012 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Security with an aggregate value of $6,655,450, representing 3.1% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  

 

(d)   144A – Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  

 

(e)   Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(f)   Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on November 30, 2012.  

 

(g)   Residual Interest Bonds held in Trust – Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  

 

(h)   Fair Value Measurement  

 

     Level 1 –
Quoted
Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
11/30/12
 
Investments in Securities – Assets        

New York Municipal Bonds & Notes

        —      $ 191,261,715            —      $ 191,261,715   

Other Municipal Bonds & Notes

           13,978,066               13,978,066   

New York Variable Rate Notes

           6,655,450               6,655,450   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

         $ 211,895,231             $ 211,895,231   
 

 

 

   

 

 

   

 

 

   

 

 

 

There were no transfers between Levels 1 and 2 during the six months ended November 30, 2012.

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GNMA     -      insured by Government National Mortgage Association
GO     -      General Obligation Bond
NPFGC     -      insured by National Public Finance Guarantee Corp.
Radian     -      insured by Radian Guaranty, Inc.

 

See accompanying Notes to Financial Statements       11.30.12       PIMCO Municipal Income Funds II Semi-Annual Report     27   


Table of Contents

PIMCO Municipal Income Funds II Statements of Assets and Liabilities

November 30, 2012 (unaudited)

 

 
        Municipal II         California
Municipal II
        New York
Municipal II
 
     

Assets:

                 

Investments, at value (cost-$1,032,444,088, $414,965,321 and $185,711,639, respectively)

      $1,179,863,940          $493,389,416          $211,895,231   

Cash

      7,013,687          3,024,831          15,673,961   

Interest receivable

      17,573,388          6,846,216          2,595,251   

Receivable for investments sold

      20,400                     

Prepaid expenses and other assets

      61,869          63,624          28,978   

Total Assets

      1,204,533,284          503,324,087          230,193,421   
     
Liabilities:                  

Payable for Floating Rate Notes issued

      49,317,277          41,398,801          13,851,894   

Payable for investments purchased

      5,500,850                   3,692,895   

Dividends payable to common and preferred shareholders

      3,958,221          1,976,149          724,412   

Investment management fees payable

      603,574          242,051          111,567   

Interest payable

      108,010          81,651          23,247   

Accrued expenses and other liabilities

      489,503          263,581          420,194   

Total Liabilities

      59,977,435          43,962,233          18,824,209   

Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 14,680, 6,520 and 3,160 shares issued and outstanding, respectively)

      367,000,000          163,000,000          79,000,000   

Net Assets Applicable to Common Shareholders

      $777,555,849          $296,361,854          $132,369,212   
     
Composition of Net Assets Applicable to Common Shareholders:                  

Common Shares:

                 

Par value ($0.00001 per share)

      $608          $316          $109   

Paid-in-capital in excess of par

      857,995,723          429,615,947          153,325,724   

Undistributed (dividends in excess of) net investment income

      22,051,027          (3,126,622)          2,196,978   

Accumulated net realized loss

      (249,902,486)          (208,554,320)          (49,309,934)   

Net unrealized appreciation of investments

      147,410,977          78,426,533          26,156,335   

Net Assets Applicable to Common Shareholders

      $777,555,849          $296,361,854          $132,369,212   

Common Shares Issued and Outstanding

      60,768,745          31,550,485          10,903,328   

Net Asset Value Per Common Share

      $12.80          $9.39          $12.14   

 

28   PIMCO Municipal Income Funds II Semi-Annual Report       11.30.12       See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds II Statements of Operations

Six Months ended November 30, 2012 (unaudited)

 

 
        Municipal II         California
Municipal II
        New York
Municipal II
 
     

Investment Income:

                 

Interest

      $29,716,156          $12,791,719          $5,317,988   

Miscellaneous income

      19,905          52            

Total Investment Income

      29,736,061          12,791,771          5,317,988   
     
Expenses:                  

Investment management fees

      3,604,806          1,440,853          668,673   

Auction agent fees and commissions

      288,748          135,154          64,739   

Interest expense

      209,241          169,538          61,189   

Custodian and accounting agent fees

      68,279          47,645          32,336   

Trustees' fees and expenses

      51,056          19,252          9,745   

Shareholder communications

      47,730          25,015          16,075   

Audit and tax service fees

      32,588          31,705          31,890   

New York Stock Exchange listing fees

      29,396          15,247          12,880   

Legal fees

      25,163          7,888          5,640   

Transfer agent fees

      17,471          17,786          15,960   

Insurance expense

      10,413          5,047          3,197   

Miscellaneous expense

      7,166          6,164          5,442   

Total Expenses

      4,392,057          1,921,294          927,766   

Less: investment management fees waived

      (44,626)          (17,814)          (8,296)   

custody credits earned on cash balances

      (3,526)          (1,923)          (2,880)   

Net Expenses

      4,343,905          1,901,557          916,590   
     

Net Investment Income

      25,392,156          10,890,214          4,401,398   
     
Realized and Change In Unrealized Gain (Loss):                  

Net realized gain (loss) on:

                 

Investments

      (496,419)          274,476          348,867   

Futures contracts

      (372,078)                   (74,416)   

Net change in unrealized appreciation/depreciation of:

                 

Investments

      53,225,233          24,130,617          8,126,993   

Futures contracts

      203,238                   40,648   

Net realized and change in unrealized gain

      52,559,974          24,405,093          8,442,092   

Net Increase in Net Assets Resulting from Investment Operations

      77,952,130          35,295,307          12,843,490   

Dividends on Preferred Shares from Net investment income

      (497,837)          (221,101)          (107,059)   

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations

      $77,454,293          $35,074,206          $12,736,431   

 

See accompanying Notes to Financial Statements       11.30.12       PIMCO Municipal Income Funds II Semi-Annual Report     29   


Table of Contents

PIMCO Municipal Income Funds II Statements of Changes in Net Assets

 Applicable to Common Shareholders

 

 
        Municipal II  
        Six Months
ended
November 30, 2012
(unaudited)
        Year ended
May 31, 2012
 

Investment Operations:

           

Net investment income

      $25,392,156          $53,422,247   

Net realized gain (loss)

      (868,497)          (14,470,319)   

Net change in unrealized appreciation/depreciation

      53,428,471          117,235,329   

Net increase in net assets resulting from investment operations

      77,952,130          156,187,257   

Dividends on Preferred Shares from Net Investment Income

      (497,837)          (844,983)   

Net increase in net assets applicable to common shareholders resulting from investment operations

      77,454,293          155,342,274   
   

Dividends to Common Shareholders from:

           

Net investment income

      (23,679,171)          (47,201,725)   

Return of capital

                 

Total Dividends Shareholders

      (23,679,171)          (47,201,725)   
   
Common Share Transactions:            

Reinvestment of dividends

      1,619,989          3,220,671   

Total increase in net assets applicable to common shareholders

      55,395,111          111,361,220   
   
Net Assets Applicable to Common Shareholders:            

Beginning of period

      722,160,738          610,799,518   

End of period*

      $777,555,849          $722,160,738   

*Including undistributed (dividends in excess of) net investment income of:

      $22,051,027          $20,835,879   
   

Common Shares Issued in Reinvestment of Dividends

      129,902          295,661   

 

30   PIMCO Municipal Income Funds II Semi-Annual Report       11.30.12       See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds II Statements of Changes in Net Assets

 Applicable to Common Shareholders (continued)

 

   
California Municipal II         New York Municipal II  
Six Months
ended
November 30, 2012
(unaudited)
      Year ended
May 31, 2012
        Six Months
ended
November 30, 2012
(unaudited)
        Year ended
May 31, 2012
 
                   
$10,890,214       $22,432,123          $4,401,398          $9,095,315   
274,476       (6,106,658)          274,451          (3,777,108)   
24,130,617       47,433,034          8,167,641          17,268,915   
35,295,307       63,758,499          12,843,490          22,587,122   
(221,101)       (383,285)          (107,059)          (181,888)   
    
35,074,206
      63,375,214          12,736,431          22,405,234   
       
                   
(11,822,697)       (22,056,823)          (4,330,269)          (8,629,270)   
      (1,522,981)                     
(11,822,697)       (23,579,804)          (4,330,269)          (8,629,270)   
       
                   
540,708       1,288,406          295,757          635,052   
23,792,217       41,083,816          8,701,919          14,411,016   
       
                   
272,569,637       231,485,821          123,667,293          109,256,277   
$296,361,854       $272,569,637          $132,369,212          $123,667,293   
$(3,126,622)       $(1,973,038)          $2,196,978          $2,232,908   
       
53,683       142,977          23,819          58,575   

 

See accompanying Notes to Financial Statements       11.30.12       PIMCO Municipal Income Funds II Semi-Annual Report     31   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies

 

PIMCO Municipal Income Fund II (‘‘Municipal II’’), PIMCO California Municipal Income Fund II (‘‘California Municipal II’’) and PIMCO New York Municipal Income Fund II (‘‘New York Municipal II’’), (each a “Fund” and collectively referred to as the ‘‘Funds’’ or ‘‘PIMCO Municipal Income Funds II’’), were organized as Massachusetts business trusts on March 29, 2002. Prior to commencing operations on June 28, 2002, the Funds had no operations other than matters relating to their organization and registration as non-diversified, closed-end management investment companies registered under the Investment Company Act of 1940; as amended, and the rules and regulations thereunder. Allianz Global Investors Fund Management LLC (the “Investment Manager”) and Pacific Investment Management Company LLC ("PIMCO" or the "Sub-Adviser") serves as the investment manager and sub-adviser, respectively, and are indirect, wholly-owned subsidiaries of Allianz Asset Management of America L.P. (“AAM”). AAM is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has authorized an unlimited amount of common shares with $0.00001 par value.

Under normal market conditions, Municipal II invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from U.S. federal income taxes. Under normal market conditions, California Municipal II invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal and California state income taxes. Under normal market conditions, New York Municipal II invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal, New York State and New York City income taxes. There can be no assurance that the Funds will meet their stated objectives. The Funds will generally seek to avoid investing in bonds generating interest income which could potentially subject individuals to alternative minimum tax. The issuers’ abilities to meet their obligations may be affected by economic and political developments in a specific state or region.

The preparation of the Funds' 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 each Fund’s financial statements. Actual results could differ from those estimates.

In the normal course of business, the Funds enter into contracts that contain a variety of representations that provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11, “Disclosures About Offsetting Assets and Liabilities”, which requires enhanced disclosures that will enable users to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The amendments are effective for fiscal years beginning on or after January 1, 2013. The Funds' management is currently evaluating the effect that the guidance may have on the Funds' financial statements.

The following is a summary of significant accounting policies consistently followed by the Funds:

(a) Valuation of Investments

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services. The Funds' investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement date.

The Board of Trustees (the “Board”) has adopted procedures for valuing portfolio securities and other financial derivative instruments in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Investment Manager and Sub-Adviser, an affiliate of the Investment Manager. The Funds' Valuation Committee was established by the Board to oversee the implementation of the Funds' valuation methods and to make fair value determinations on behalf of the Board, as instructed. The Sub-Adviser monitors the

 

32   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Sub-Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee.

Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.

The prices used by the Funds to value securities may differ from the value that would be realized if the securities were sold, and these differences could be material to the Funds' financial statements. Each Funds' net asset value ("NAV") is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange ("NYSE") on each day the NYSE is open for business.

(b) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:

 

    Level 1 — quoted prices in active markets for identical investments that the Funds have the ability to access
    Level 2 — valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates or other market corroborated inputs
    Level 3 — valuations based on significant unobservable inputs (including the Sub-Adviser's or Valuation Committee's own assumptions and single broker quotes in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following are certain inputs and techniques that the Funds generally use to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with Generally Accepted Accounting Principles (“GAAP”).

Municipal Bonds & Notes and Variable Rate Notes — Municipal bonds & notes and variable rate notes are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond or note insurance. To the extent that these inputs are observable, the values of municipal bonds & notes and variable rate notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

The valuation techniques used by the Funds to measure fair value during the six months ended November 30, 2012 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

The Funds' policy is to recognize transfers between levels at the end of the reporting period. An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to the fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used. Investments categorized as Level 1 or 2 as of period end may have been transferred between Levels 1 and 2 since the prior period due to changes in the valuation method utilized in valuing the investments.

(c) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on an identified cost basis. Interest income adjusted for the accretion of discount and amortization of premium is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income.

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     33   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

(d) Federal Income Taxes

The Funds intend to distribute all of their taxable income and to comply with the other requirements of Subchapter M 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.

Accounting for uncertainty in income taxes establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Funds' management has determined that its evaluation has resulted in no material impact to the Funds' financial statements at November 30, 2012. The Funds' federal tax returns for the prior three years remain subject to examination by the Internal Revenue Service.

(e) Dividends and Distributions — Common Shares

The Funds declare dividends from net investment income to common shareholders monthly. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions on the ex-dividend date. The amount of dividends from net investment income and distributions from net realized capital gains is determined in accordance with federal income tax regulations, which may differ from GAAP. These “book-tax” differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal 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 to shareholders from return of capital.

(f) Inverse Floating Rate Transactions — Residual Interest Municipal Bonds (‘‘RIBs’’) / Residual Interest Tax Exempt Bonds (‘‘RITEs’’)

The Funds invest in RIBs and RITEs (‘‘Inverse Floaters’’), whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. In inverse floating rate transactions, the Funds sell a fixed rate municipal bond (‘‘Fixed Rate Bond’’) to a broker who places the Fixed Rate Bond in a special purpose trust (‘‘Trust’’) from which floating rate bonds (‘‘Floating Rate Notes’’) and Inverse Floaters are issued. The Funds simultaneously or within a short period of time, purchase the Inverse Floaters from the broker. The Inverse Floaters held by the Funds provide the Funds with the right to: (1) cause the holders of the Floating Rate Notes to tender their notes at par, and (2) cause the broker to transfer the Fixed-Rate Bond held by the Trust to the Funds, thereby collapsing the Trust. The Funds account for the transaction described above as a secured borrowing by including the Fixed Rate Bond in their Schedules of Investments, and account for the Floating Rate Notes as a liability under the caption ‘‘Payable for Floating Rate Notes issued’’ in the Funds' Statements of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date.

The Funds may also invest in Inverse Floaters without transferring a fixed rate municipal bond into a Trust, which are not accounted for as secured borrowings. The Funds may also invest in Inverse Floaters for the purpose of increasing leverage.

The Inverse Floaters are created by dividing the income stream provided by the underlying bonds to create two securities, one short-term and one long-term. The interest rate on the short-term component is reset by an index or auction process typically every 7 to 35 days. After income is paid on the short-term securities at current rates, the residual income from the underlying bond(s) goes to the long-term securities. Therefore, rising short-term rates result in lower income for the long-term component and vice versa. The longer-term bonds may be more volatile and less liquid than other municipal bonds of comparable maturity. Investments in Inverse Floaters typically will involve greater risk than in an investment in Fixed Rate Bonds.

The Funds' restrictions on borrowings do not apply to the secured borrowings deemed to have occurred for accounting purposes. Inverse Floaters held by the Funds are exempt from registration under Rule 144A of the Securities Act of 1933.

 

34   PIMCO Municipal Income Funds II Semi-Annual Report     11.30.12


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

In addition to general market risks, the Funds’ investments in Inverse Floaters may involve greater risk and volatility than an investment in a fixed rate bond, and the value of Inverse Floaters may decrease significantly when market interest rates increase. Inverse Floaters have varying degrees of liquidity, and the market for these securities may be volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Although volatile, Inverse Floaters typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Trusts in which Inverse Floaters may be held could be terminated due to market, credit or other events beyond the Funds’ control, which could require the Funds to reduce leverage and dispose of portfolio investments at inopportune times and prices.

(g) Restricted Securities

The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.

(h) Interest Expense

Interest expense relates to the Funds' participation in Floating Rate Notes held by third parties in conjunction with Inverse Floater transactions.

(i) Custody Credits on Cash Balances

The Funds may benefit from an expense offset arrangement with their custodian bank, whereby uninvested cash balances may earn credits that reduce monthly custodian and accounting agent expenses. Had these cash balances been invested in income-producing securities, they would have generated income for the Funds. Cash overdraft charges, if any, are included in custodian and accounting agent fees.

2. Principal Risks

In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to, among other things, changes in the market (market risk) or failure of the other party to a transaction to perform (counterparty risk). The Funds are also exposed to other risks such as, but not limited to, interest rate, credit and leverage risks.

Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Funds are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income security's market price to interest rate (i.e. yield) movements.

Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When a Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the NAV of the Funds' shares.

The Funds are exposed to credit risk, which is the risk of losing money if the issuer or guarantor of a fixed income security is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.

 

11.30.12      PIMCO Municipal Income Funds II Semi-Annual Report     35   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2012 (unaudited)

 

2. Principal Risks (continued)

 

The market values of securities may decline due to general market conditions (market risk) which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities.

The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The potential loss to the Funds could exceed the value of the financial assets recorded in the Funds' financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist principally of cash due from counterparties and investments. The Sub-Adviser, seeks to minimize the Funds' counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

The Funds are exposed to risks associated with leverage. Leverage may cause the value of the Funds' shares to be more volatile than if the Funds did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds' portfolio securities. The Funds may engage in transactions or purchase instruments that give rise to forms of leverage. In addition, to the extent the Funds employ leverage, interest costs may not be recovered by any appreciation of the securities purchased with the leverage proceeds and could exceed the Funds' investment returns, resulting in greater losses.

The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") with select counterparties that govern transactions, over-the-counter derivatives and foreign exchange contracts entered into by the Funds and those counterparties. The ISDA Master Agreements contain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements of the Funds.

3. Financial Derivative Instruments

Disclosure about derivatives and hedging activities requires qualitative disclosure regarding objectives and strategies for using derivatives, quantitative disclosure about fair value amounts of gains and losses on derivatives, and disclosure about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as "hedges", and those that do not qualify for such accounting. Although the Funds sometimes use derivatives for hedging purposes, the Funds reflect derivatives at fair value and recognize changes in fair value through the Funds' Statements of O