PIMCO California Municipal Income Fund II
Table of Contents

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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, 2012

Date of reporting period: November 30, 2011

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e -1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-2001. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 


Table of Contents

Item 1. REPORT TO SHAREHOLDERS

 

LOGO

 

Semi-Annual Report

 

November 30, 2011

 

 

 

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     7-24   
Statements of Assets and Liabilities     26   
Statements of Operations     27   
Statements of Changes in Net Assets     28-29   
Notes to Financial Statements     30-40   
Financial Highlights     41-43   
Annual Shareholder Meeting Results/Portfolio Manager Change/Proxy Voting Policies & Procedures     44   
Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements     45-48   

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     1   


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LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

Dear Shareholder,

 

Municipal bonds delivered solid returns for investors during the six-month period ended November 30, 2011. Contributing to gains was a gradually improving U.S. economy, an overall decline in the issuance of new bonds and continued demand for tax-advantaged investment products.

 

Six-Months in Review

For the six-month period ended November 30, 2011:

 

 

PIMCO Municipal Income Fund II advanced 9.84% on net asset value (“NAV”) and 10.69% on market price.

 

 

PIMCO California Municipal Income Fund II rose 8.63% on NAV and 5.91 % on market price.

 

 

PIMCO New York Municipal Income Fund II increased 6.62% on NAV and 6.22% on market price.

 

U.S. 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, rose at an annual rate of 1.3% between April and June 2011 and at 1.8% between July and September 2011. Growth in the final two months of the fiscal period was expected to be similarly modest.

 

The Federal Reserve (“the Fed”) maintained a cautious stance during the six-month period as they revealed that key interest rates would remain at historic lows “at least through mid-2013.” The Fed also launched a third quantitative easing program, dubbed “Operation Twist,” which entails the selling of $400 billion in short-term U.S. debt and the purchase of a similar amount of longer-term debt. This move was intended to lower mortgage rates, already at the lowest levels in decades, in an attempt to bolster the housing market.

 

The Fed warned of “significant downside risks to the economic outlook, including strains in global financial markets.” To a certain respect this referred to the deepening sovereign debt crisis in the European Union (“E.U.”). The crisis has raised fears that the “Euro-zone” group of nations may break up. The economic and political implications on the rest of the world, including the United States, are uncertain.

 

Another downside risk is America’s burgeoning debt crisis. Standard & Poor’s, (“S&P”), was so concerned about the inability of Congress and the White House to solve the nation’s deepening fiscal problems that it downgraded the U.S. government’s long-term credit rating from AAA to AA+. This concern was validated by the subsequent failure of a Congressional “super committee” to agree on $1.2 trillion in spending cuts.

 

2   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


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Ironically, concerns regarding the level of U.S. debt did not hinder its reputation as a safe haven investment. In the wake of S&P’s downgrade, investors bid up prices — the yield on the benchmark 10-year U.S. Treasury bond fell to a historic low of 1.72%. Since municipal bonds tend to correlate closely with comparable Treasury securities, they rallied as well.

 

In terms of issuance, the supply of new municipal bonds fell by approximately one-third during the six-month period ended November 30, 2011 compared to the same period in 2010.

 

Outlook

In addition to uncertainties surrounding the European and U.S. debt crisis, the Bush-era tax cuts are scheduled to expire on December 31, 2012. This possibility, combined with ongoing budget struggles at the state and local level, suggests that tax rates are likely to move higher. This bodes well for municipal bonds, which will continue to remain attractive for investors seeking reliable, tax-advantaged income.

 

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 are 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.

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     3   


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PIMCO Municipal Income Funds II Fund Insights

November 30, 2011 (unaudited)

 

For the six-months ended November 30, 2011, PIMCO Municipal Income Fund II returned 9.84% on net asset value (“NAV”) and 10.69% on market price.

 

For the six-months ended November 30, 2011, PIMCO California Municipal Income Fund II returned 8.63% on net asset value (“NAV”) and 5.91% on market price.

 

For the six-months ended November 30, 2011, PIMCO New York Municipal Income Fund II returned 6.62% on net asset value (“NAV”) and 6.22% on market price.

 

The municipal bond market produced positive returns during the six-month fiscal period ended November 30, 2011. The overall municipal market, as measured by the Barclays Capital Municipal Bond Index, posted positive returns during five of the six months in the reporting period. Factors supporting the market during the period included: robust investor demand as fear of mass defaults from earlier in the year were somewhat mitigated, as states experienced improving revenue and actively addressed structural budgetary issues; a sharp decline in new issuance of municipal securities; sharply declining interest rates due to several flights to quality.

 

During the reporting period, all three funds had a preference for revenue bonds versus general obligation bonds which was beneficial for results. California Municipal Income II also benefited from its allocation to general obligation bonds, given their solid results.

 

The Funds were rewarded for having exposure to tobacco bonds . This higher yielding sector outperformed the benchmark during the six-months ended November 30, 2011.

 

Exposure to health care was additive to the Funds’ performance as this sector outperformed the benchmarks. Municipal Income II and New York Municipal Income II benefited from exposure to the corporate-backed sector. California Municipal II’s performance was enhanced by exposure to the education sector.

 

Shorter duration than that of their benchmarks detracted from the performance of each fund, as municipal yields declined during the reporting period. A steepening yield curve bias also adversely effected the Fund’s results, as the municipal curve flattened during the six-month period.

 

4   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


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PIMCO Municipal Income Funds II Performance & Statistics

November 30, 2011 (unaudited)

 

Municipal II:

            
Total Return(1):   Market Price      NAV  

Six Month

    10.69%         9.84%   

1 Year

    13.66%         10.43%   

5 Year

    0.04%         0.01%   

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

    3.80%         3.86%   

 

Market Price/NAV Performance:

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

 

LOGO

Market Price/NAV:        

Market Price

    $11.15   

NAV

    $10.71   

Premium to NAV

    4.11%   

Market Price Yield(2)

    7.00%   

 

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

California Municipal II:

            
Total Return(1):   Market Price      NAV  

Six Month

    5.91%         8.63%   

1 Year

    15.70%         9.16%   

5 Year

    2.90%       4.89%   

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

    2.28%         0.93%   

 

Market Price/NAV Performance:

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

 

LOGO

Market Price/NAV:        

Market Price

    $9.35   

NAV

    $7.63   

Premium to NAV

    22.54%   

Market Price Yield(2)

    7.52%   

 

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

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PIMCO Municipal Income Funds II Performance & Statistics

November 30, 2011 (unaudited)

 

New York Municipal II:

            
Total Return(1):   Market Price      NAV  

Six Month

    6.22%         6.62%   

1 Year

    6.03%         6.70%   

5 Year

    0.13%       0.56%   

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

    3.62%         3.36%   

 

Market Price/NAV Performance:

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

 

LOGO

Market Price/NAV:        

Market Price

    $11.17   

NAV

    $10.36   

Premium to NAV

    7.82%   

Market Price Yield(2)

    7.12%   

 

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 and capital gain 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 Funds’ 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 per common share dividend (comprised of net investment income) payable to common shareholders by the market price per common share at November 30, 2011.

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited)

 

Principal
Amount
(000s)
                   Value  

 

MUNICIPAL BONDS & NOTES – 98.1%

   
    Alabama – 1.3%    
$
10,000
  
   

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

    $ 8,907,900   
 
1,235
  
   

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

      1,149,106   
  2,000       

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

      2,117,700   
 
2,650
  
   

Tuscaloosa Public Educational Building Auth. Rev., Stillman College Project,
5.00%, 6/1/26, Ser. A

      2,172,231   
       

 

 

 
          14,346,937   
       

 

 

 
    Alaska – 0.3%    
  5,900       

Northern Tobacco Securitization Corp. Rev., 5.00%, 6/1/46, Ser. A

      3,700,598   
       

 

 

 
    Arizona – 9.8%    
   

Health Facs. Auth. Rev., Banner Health,

   
  3,500       

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

      3,519,880   
  2,860       

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

      2,967,307   
  29,700       

Pima Cnty. Industrial Dev. Auth. Rev.,

   
   

5.00%, 9/1/39

      29,433,591   
   

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

   
  1,750       

5.25%, 7/1/36

      1,785,560   
  3,700       

5.25%, 7/1/41

      3,772,372   
   

Salt River Project Agricultural Improvement & Power Dist. Rev., Ser. A (j),

   
  41,100       

5.00%, 1/1/37

      42,488,769   
  10,000       

5.00%, 1/1/39

      10,541,100   
  11,400       

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

      10,469,190   
  1,500       

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

      1,473,645   
       

 

 

 
          106,451,414   
       

 

 

 
    California – 14.4%    
   

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

   
  6,000       

5.00%, 10/1/29

      6,377,760   
  1,430       

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

      1,485,613   
  1,565       

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

      1,569,132   
   

Golden State Tobacco Securitization Corp. Rev., Ser. A-1,

   
  8,750       

5.00%, 6/1/33

      5,975,638   
  7,000       

5.75%, 6/1/47

      4,939,830   
  2,000       

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

      1,986,780   
   

Health Facs. Financing Auth. Rev.,

   
  1,500       

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

      1,518,585   
   

Sutter Health,

   
  6,300       

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

      6,135,318   
  3,000       

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

      3,266,550   

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

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

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

    $ 1,250,955   
  2,000       

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

      2,086,860   
  4,000       

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

      4,105,400   
  5,000       

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

      5,196,850   
  1,365       

Lynwood Utility Auth. Rev., 5.00%, 6/1/29, Ser. A (AGC)

      1,408,857   
  2,000       

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

      2,076,660   
  1,750       

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

      1,939,052   
  3,300       

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

      3,544,002   
 
650
  
   

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

      619,054   
  3,000       

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

      3,290,970   
  500       

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

      507,590   
  2,000       

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

      2,046,100   
  3,300       

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

      3,378,507   
 
2,000
  
   

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

      2,059,060   
   

State, GO,

   
  7,000       

5.00%, 12/1/31 (NPFGC)

      7,096,320   
  2,925       

5.00%, 11/1/32

      2,972,677   
  1,590       

5.00%, 6/1/37

      1,594,532   
  5,200       

5.125%, 8/1/36

      5,300,932   
  2,500       

5.25%, 3/1/38

      2,546,350   
  5,945       

5.25%, 11/1/40

      6,076,206   
  5,750       

5.50%, 3/1/40

      6,072,862   
  9,500       

6.00%, 4/1/38

      10,485,815   
  2,300       

State Univ. Rev., 5.00%, 11/1/30, Ser. A (AMBAC)

      2,352,601   
   

Statewide Communities Dev. Auth. Rev.,

   
   

California Baptist Univ.,

   
  3,390       

5.75%, 11/1/17, Ser. B (a)(c)(f)

      3,527,764   
  850       

6.50%, 11/1/21

      919,598   
  1,000       

Cottage Health, 5.00%, 11/1/40

      984,920   
   

Methodist Hospital Project (FHA),

   
  5,500       

6.625%, 8/1/29

      6,562,490   
  19,500       

6.75%, 2/1/38

      22,490,715   
  5,690       

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

      6,195,556   
  4,725       

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

      4,618,924   
       

 

 

 
          156,563,385   
       

 

 

 

 

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PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Colorado – 1.2%    
$ 5,800       

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

    $ 5,782,368   
  1,000       

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

      990,810   
  2,500       

Health Facs. Auth. Rev., Ser. A, 5.00%, 2/1/41

      2,477,100   
  1,000       

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

      836,570   
  500       

Evangelical Lutheran, 6.125%, 6/1/38

      504,285   
 
2,000
  
   

Housing & Finance Auth. Rev., Evergreen Country Day School, Inc. Project,
5.875%, 6/1/37 (a)(c)

      1,314,160   
  1,430       

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

      1,538,923   
       

 

 

 
          13,444,216   
       

 

 

 
    Connecticut – 0.3%    
  1,250       

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

      1,358,125   
  2,000       

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

      1,981,620   
       

 

 

 
          3,339,745   
       

 

 

 
    Florida – 4.2%    
  1,000       

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

      1,107,070   
  600       

Broward Cnty. Airport Rev., 5.375%, 10/1/29, Ser. O

      631,026   
  8,500       

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

      9,107,410   
  1,000       

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

      1,069,230   
  340       

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

      342,149   
  6,205       

Governmental Utility Auth. Rev., Barefoot Bay Utilities System, 5.00%, 10/1/29 (AMBAC)

      6,207,792   
  3,000       

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

      3,131,580   
  7,135       

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

      7,269,281   
  3,000       

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

      2,934,810   
  500       

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

      417,800   
  7,900       

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

      8,375,343   
  5,000       

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

      4,320,500   
       

 

 

 
          44,913,991   
       

 

 

 
    Georgia – 0.4%    
  1,500       

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

      1,516,830   
  2,775       

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

      2,256,713   
       

 

 

 
          3,773,543   
       

 

 

 
    Illinois – 7.6%    
  10,000       

Chicago, GO, 5.00%, 1/1/34, Ser. C (j)

      10,029,200   
   

Chicago, Special Assessment, Lake Shore East,

   
  2,849       

6.625%, 12/1/22

      2,936,208   
  6,019       

6.75%, 12/1/32

      6,195,658   
  1,250       

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

      1,263,650   
  5,000       

Cicero, GO, 5.25%, 12/1/31 (NPFGC)

      5,050,650   

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     9   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Illinois (continued)    
   

Finance Auth. Rev.,

   
$ 2,500       

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

    $ 2,248,825   
  250       

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

      62,712   
  1,000       

Memorial Health Systems, 5.50%, 4/1/39

      1,010,110   
  700       

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

      779,989   
  2,000       

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

      2,048,880   
  5,000       

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

      5,405,550   
  37,000       

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

      38,469,270   
   

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

   
  4,500       

6.55%, 1/1/20

      4,270,275   
  2,900       

7.00%, 1/1/28

      2,566,094   
       

 

 

 
          82,337,071   
       

 

 

 
    Indiana – 0.4%    
  1,500       

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

      1,630,080   
   

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

   
  990       

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

      839,183   
  1,900       

7.50%, 9/1/22

      2,197,331   
       

 

 

 
          4,666,594   
       

 

 

 
    Iowa – 3.9%    
   

Finance Auth. Rev.,

   
   

Deerfield Retirement Community, Inc., Ser. A,

   
  250       

5.50%, 11/15/27

      188,890   
  1,075       

5.50%, 11/15/37

      739,299   
  4,500       

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

      3,858,660   
  46,000       

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

      37,250,340   
       

 

 

 
          42,037,189   
       

 

 

 
    Kansas – 0.1%    
  500       

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

      540,650   
  850       

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

      715,861   
       

 

 

 
          1,256,511   
       

 

 

 
    Kentucky – 0.3%    
   

Economic Dev. Finance Auth. Rev.,

   
  2,500       

Catholic Healthcare Partners, 5.25%, 10/1/30

      2,509,375   
  1,000       

Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A

      1,045,610   
       

 

 

 
          3,554,985   
       

 

 

 
    Louisiana – 4.7%    
   

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

   
  450       

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

      469,732   

 

10   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Louisiana (continued)    
   

Woman’s Hospital Foundation, Ser. A,

   
$ 750       

5.875%, 10/1/40

    $ 757,898   
  1,000       

6.00%, 10/1/44

      1,015,630   
   

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

   
  3,300       

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

      3,190,143   
  2,000       

6.50%, 5/15/37

      2,127,540   
  43,395       

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

      43,434,056   
       

 

 

 
          50,994,999   
       

 

 

 
    Maryland – 0.9%    
   

Health & Higher Educational Facs. Auth. Rev.,

   
  1,000       

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

      1,007,900   
  1,400       

Charlestown Community, 6.25%, 1/1/41

      1,470,056   
  1,010       

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

      756,167   
  2,380       

Medstar Health, 5.00%, 8/15/41

      2,329,354   
  4,050       

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

      4,111,438   
       

 

 

 
          9,674,915   
       

 

 

 
    Massachusetts – 0.8%    
   

Dev. Finance Agcy. Rev.,

   
   

Adventcare Project,

   
  4,610       

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

      4,341,928   
  580       

7.625%, 10/15/37

      593,961   
  1,000       

Foxborough Regional Charter School,

   
   

7.00%, 7/1/42, Ser. A

      1,034,390   
  2,900       

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

      3,095,837   
       

 

 

 
          9,066,116   
       

 

 

 
    Michigan – 3.1%    
  1,000       

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

      1,019,180   
  800       

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

      542,560   
  3,000       

Royal Oak Hospital Finance Auth. Rev.,

   
   

William Beaumont Hospital, 8.25%, 9/1/39

      3,549,750   
   

State Hospital Finance Auth. Rev.,

   
  5,000       

Ascension Health, 5.25%, 11/15/26, Ser. B

      5,100,750   
   

Oakwood Group, Ser. A,

   
  13,500       

5.75%, 4/1/32

      13,587,480   
  1,925       

6.00%, 4/1/22

      1,996,668   
  11,000       

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

      7,756,430   
       

 

 

 
          33,552,818   
       

 

 

 
    Minnesota – 0.6%    
  150       

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

      136,751   
  1,500       

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

      1,358,220   

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     11   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Minnesota (continued)    
   

North Oaks Rev., Presbyterian Homes North Oaks,

   
$ 2,640       

6.00%, 10/1/33

    $ 2,651,299   
  1,530       

6.125%, 10/1/39

      1,541,368   
  500       

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

      431,705   
  400       

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

      410,588   
       

 

 

 
          6,529,931   
       

 

 

 
    Mississippi – 0.1%    
 
605
  
   

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

      598,859   
       

 

 

 
    Missouri – 0.1%    
  750       

Lees Summit, Tax Allocation, Summit Fair Project, 5.625%, 10/1/23

      757,770   
       

 

 

 
    Nevada – 0.9%    
  10,000       

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

      9,999,600   
       

 

 

 
    New Hampshire – 0.2%    
  2,000       

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

      2,042,740   
  360       

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

      363,168   
       

 

 

 
          2,405,908   
       

 

 

 
    New Jersey – 4.8%    
 
950
  
   

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

      828,010   
   

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

   
  4,000       

5.75%, 10/1/21

      4,062,600   
  11,405       

5.75%, 4/1/31

      11,004,570   
   

Economic Dev. Auth. Rev.,

   
  525       

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

      464,352   
  2,000       

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

      2,042,160   
   

Health Care Facs. Financing Auth. Rev.,

   
  1,500       

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

      1,631,985   
  1,500       

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

      1,397,565   
  1,830       

Trinitas Hospital, 5.25%, 7/1/30, Ser. A

      1,698,716   
  2,000       

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

      2,087,460   
   

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

   
  3,300       

4.75%, 6/1/34

      2,261,523   
  13,150       

5.00%, 6/1/41

      9,080,996   
  15,000       

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

      14,999,700   
       

 

 

 
          51,559,637   
       

 

 

 
    New Mexico – 0.2%    
  2,000       

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

      2,034,680   
       

 

 

 

 

12   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    New York – 9.0%    
$ 1,200       

Erie Cnty. Industrial Dev. Agcy. Rev.,

   
   

Orchard Park, Inc. Project, 6.00%, 11/15/36, Ser. A

    $ 991,212   
  14,500       

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

      14,742,150   
   

Liberty Dev. Corp. Rev.,

   
  1,000       

5.125%, 1/15/44

      1,002,250   
  2,500       

5.625%, 7/15/47

      2,475,150   
  1,250       

6.375%, 7/15/49

      1,288,550   
   

Goldman Sachs Headquarters,

   
  1,505       

5.25%, 10/1/35

      1,525,408   
  10,000       

5.25%, 10/1/35 (j)

      10,135,600   
  1,100       

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

      853,600   
  2,830       

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

   
   

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

      2,944,898   
   

Second Generation Resolutions,

   
  4,000       

4.75%, 6/15/35, Ser. DD (j)

      4,107,480   
  2,000       

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

      2,094,440   
  50,000       

New York Liberty Dev. Corp. Rev., World Trade Center Project, 5.75%, 11/15/51

      52,989,000   
  1,750       

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

      1,850,310   
       

 

 

 
          97,000,048   
       

 

 

 
    North Carolina – 0.1%    
   

Medical Care Commission Rev.,

   
  550       

Salemtowne, 5.10%, 10/1/30

      502,090   
  1,000       

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

      798,180   
       

 

 

 
          1,300,270   
       

 

 

 
    North Dakota – 0.3%    
  3,710       

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

      3,580,632   
       

 

 

 
    Ohio – 2.3%    
   

Buckeye Tobacco Settlement Financing Auth. Rev., Ser. A-2,

   
  1,865       

5.75%, 6/1/34

      1,358,783   
  3,570       

5.875%, 6/1/30

      2,669,254   
  500       

5.875%, 6/1/47

      349,950   
   

Hamilton Cnty. Rev., Ser. A,

   
  3,180       

5.00%, 12/1/29

      3,301,603   
  3,900       

5.00%, 12/1/30

      4,020,627   
   

Higher Educational Fac. Commission Rev.,

   
  550       

Ashland Univ. Project, 6.25%, 9/1/24

      559,185   
  1,000       

Univ. Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A

      1,057,150   
  7,500       

Lorain Cnty. Hospital Rev., Catholic Healthcare, 5.375%, 10/1/30

      7,554,900   

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     13   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

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

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

    $ 1,040,170   
  3,000       

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

      3,141,030   
       

 

 

 
          25,052,652   
       

 

 

 
    Oregon – 0.2%    
  1,000       

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

      1,051,290   
  1,155       

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

      1,215,684   
       

 

 

 
          2,266,974   
       

 

 

 
    Pennsylvania – 5.0%    
   

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

   
  750       

5.625%, 7/1/28

      698,348   
  670       

6.00%, 7/1/35

      622,986   
  3,250       

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

      2,943,948   
   

Higher Educational Facs. Auth. Rev.,

   
  850       

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

      853,910   
  400       

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

      411,672   
  500       

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

      528,090   
   

Montgomery Cnty. Higher Education & Health Auth. Rev.,

   
   

Abington Memorial Hospital, Ser. A,

   
  5,000       

5.125%, 6/1/27

      5,014,500   
  3,750       

5.125%, 6/1/32

      3,750,787   
  8,500       

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

      8,866,775   
  17,000       

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

      17,533,290   
  11,015       

Philadelphia Hospitals & Higher Education Facs. Auth. Rev., Temple Univ. Hospital,
6.625%, 11/15/23, Ser. A

      11,023,371   
  500       

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

      518,800   
  1,000       

Westmoreland Cnty. Industrial Dev. Auth. Rev.,

   
   

Excela Health Project, 5.125%, 7/1/30

      989,920   
       

 

 

 
          53,756,397   
       

 

 

 
    Puerto Rico – 0.5%    
  5,000       

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

      5,058,600   
       

 

 

 
    Rhode Island – 4.9%    
  56,200       

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

      53,348,974   
       

 

 

 
    South Carolina – 1.4%    
  1,000       

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

      1,016,190   
   

Jobs-Economic Dev. Auth. Rev.,

   
  500       

Anmed Health, 5.50%, 2/1/38, Ser. B (AGC)

      508,530   
  13,850       

Bon Secours Health System, 5.625%, 11/15/30, Ser. B

      13,953,875   
       

 

 

 
          15,478,595   
       

 

 

 

 

14   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Tennessee – 0.6%    
$
1,750
  
   

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

    $ 1,854,230   
 
1,000
  
   

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

      1,024,150   
 
500
  
   

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

      468,420   
   

Tennessee Energy Acquisition Corp. Rev.,

   
  3,000       

5.00%, 2/1/23, Ser. C

      2,888,040   
  700       

5.25%, 9/1/21, Ser. A

      689,983   
       

 

 

 
          6,924,823   
       

 

 

 
    Texas – 11.2%    
  130       

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

      136,657   
  6,500       

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

      6,501,625   
  2,500       

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

      2,617,325   
   

Harris Cnty. Cultural Education Facs. Finance Corp. Rev., Texas Children’s Hospital Project,

   
  3,750       

5.25%, 10/1/29

      3,997,125   
  12,700       

5.50%, 10/1/39

      13,606,526   
  700       

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

      504,448   
   

North Harris Cnty. Regional Water Auth. Rev.,

   
  10,300       

5.25%, 12/15/33

      10,849,608   
  10,300       

5.50%, 12/15/38

      10,933,656   
   

North Texas Tollway Auth. Rev.,

   
  5,250       

4.75%, 1/1/29 (FGIC-NPFGC)

      5,250,525   
  5,750       

5.00%, 1/1/38

      5,683,702   
  1,300       

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

      1,404,702   
  5,000       

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

      5,268,650   
  1,200       

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

      1,229,544   
  2,000       

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

      419,100   
  250       

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

      258,275   
   

State, Mobility Fund, GO (j),

   
  10,025       

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

      10,271,916   
  17,500       

4.75%, 4/1/36

      17,994,375   
  1,000       

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

      971,320   
 
3,000
  
   

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

      3,361,290   
   

Texas Municipal Gas Acquisition & Supply Corp. I Rev.,

   
  450       

5.25%, 12/15/25, Ser. A

      435,249   
  15,300       

6.25%, 12/15/26, Ser. D

      16,046,793   
  1,920       

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

      2,076,442   
  1,000       

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

      1,053,550   
       

 

 

 
          120,872,403   
       

 

 

 

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     15   


Table of Contents

PIMCO Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                   Value  
    Virginia – 0.2%    
$ 1,000       

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

    $ 1,079,030   
 
2,050
  
   

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

      1,301,053   
       

 

 

 
          2,380,083   
       

 

 

 
    Washington – 1.5%    
   

Health Care Facs. Auth. Rev.,

   
  1,300       

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

      1,389,778   
  1,000       

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

      1,112,500   
  13,000       

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

      13,132,080   
       

 

 

 
          15,634,358   
       

 

 

 
    West Virginia – 0.2%    
  2,000       

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

      2,112,080   
       

 

 

 
    Wisconsin – 0.1%    
   

Health & Educational Facs. Auth. Rev.,

   
  90       

Froedert & Community Health, 5.375%, 10/1/30

      90,695   
  1,000       

Prohealth Care, Inc., 6.625%, 2/15/39

      1,089,530   
       

 

 

 
          1,180,225   
       

 

 

 
   

Total Municipal Bonds & Notes (cost-$1,038,220,488)

      1,063,508,526   
       

 

 

 
       

 

VARIABLE RATE NOTES (h) – 1.9%

   
    California – 0.5%    
  5,000       

Health Facs. Financing Auth. Rev., 9.44%, 11/15/36, Ser. 3193 (a)(c)(g)

      5,140,300   
       

 

 

 
    Florida – 0.2%    
 
1,830
  
   

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

      1,843,615   
       

 

 

 
    Illinois – 0.5%    
  6,000       

Chicago, GO, 11.64%, 1/1/34, Ser. 3190 (a)(c)(g)

      6,043,800   
       

 

 

 
    Texas – 0.5%    
  5,365       

State, GO, 8.93%, 4/1/37, Ser. 3197 (a)(c)(g)

      5,689,958   
       

 

 

 
    West Virginia – 0.2%    
  2,000       

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

      2,032,040   
       

 

 

 
   

Total Variable Rate Notes (cost-$20,310,620)

      20,749,713   
       

 

 

 
   

Total Investments (cost-$1,058,531,108) – 100.0%

    $ 1,084,258,239   
       

 

 

 

 

16   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited)

 

Principal
Amount
(000s)
                 Value  

CALIFORNIA MUNICIPAL BONDS & NOTES – 87.0%

   
$  2,000    

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

    $ 2,084,680   
20,000    

Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/39, Ser. F-1 (j)

      20,777,800   
1,000    

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

      1,094,570   
300    

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

      307,116   
1,410    

Community College Financing Auth. Rev., 5.00%, 8/1/27, Ser. A (AMBAC)

      1,413,229   
9,360    

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

      8,801,489   
1,110    

Corona-Norco Unified School Dist. No. 98-1, Special Tax, 5.10%, 9/1/25 (AMBAC)

      1,092,684   
   

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

   
305    

5.65%, 9/1/16

      307,696   
160    

5.75%, 9/1/17

      160,938   
530    

6.00%, 9/1/20

      533,175   
1,000    

6.00%, 9/1/25

      1,005,490   
4,150    

6.10%, 9/1/32

      4,155,146   
3,000    

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

      3,080,430   
8,300    

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

      8,533,396   
1,500    

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

      1,503,960   
1,440    

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

      1,333,454   
   

Golden State Tobacco Securitization Corp. Rev.,

   
13,885    

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

      12,517,744   
1,500    

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

      1,352,295   
6,000    

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

      5,409,180   
8,500    

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

      5,462,950   
22,415    

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

      15,818,041   
   

Health Facs. Financing Auth. Rev.,

   
   

Adventist Health System, Ser. A,

   
500    

5.00%, 3/1/33

      493,520   
250    

5.75%, 9/1/39

      260,585   
3,000    

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

      3,185,130   
1,200    

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

      1,184,712   
500    

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

      539,985   
3,700    

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

      3,806,745   
2,000    

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

      1,947,720   
6,130    

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

      6,186,764   
175    

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

      177,930   
1,000    

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

      1,060,900   
500    

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

      463,790   
1,000    

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

      1,017,400   
7,500    

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

      6,790,875   
10,000    

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

      10,803,100   
       

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     17   


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                 Value  
$  4,895    

Los Angeles, Equipment & Real Property Project, CP, 5.00%, 2/1/27, Ser. T (NPFGC)

    $ 4,900,482   
15,000    

Los Angeles Department of Water & Power Rev., 4.75%, 7/1/30, Ser. A-2 (AGM) (j)

      15,310,500   
11,000    

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

      11,363,550   
10,000    

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

      8,545,000   
5,330    

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

      5,347,269   
4,000    

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

      4,019,120   
5,000    

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

      5,237,200   
4,700    

Moreno Valley Unified School Dist. Community Facs. Dist. No. 2004-6, Special Tax, 5.20%, 9/1/36

      4,098,165   
1,400    

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

      1,551,242   
1,300    

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

      1,396,122   
5,000    

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

      5,343,950   
4,750    

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

      4,907,985   
10,000    

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

      10,051,100   
1,500    

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

      1,456,635   
3,000    

Riverside, CP, 5.00%, 9/1/33 (AMBAC)

      2,764,260   
   

Riverside Unified School Dist. Community Facs. School Dist. No. 15, Special Tax, Ser. A,

   
1,000    

5.25%, 9/1/30

      926,790   
1,000    

5.25%, 9/1/35

      900,960   
   

Roseville Redev. Agcy., Tax Allocation, Ser. B (NPFGC),

   
2,230    

5.00%, 9/1/27

      2,086,321   
3,365    

5.00%, 9/1/32

      3,034,860   
   

San Diego Public Facs. Financing Auth. Rev.,

   
11,000    

5.00%, 8/1/32 (NPFGC)

      11,080,520   
4,000    

5.25%, 8/1/38, Ser. A

      4,220,040   
1,000    

5.25%, 5/15/39, Ser. A

      1,052,140   
1,500    

Fire & Life Safety Facs. Project, 5.00%, 4/1/32, Ser. B (NPFGC)

      1,475,460   
2,800    

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

      2,965,872   
2,800    

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

      2,882,152   
1,000    

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

      1,053,830   
1,300    

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

      1,330,927   
1,260    

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

      1,294,990   
1,500    

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

      1,671,075   
   

State, GO,

   
2,500    

5.00%, 9/1/31

      2,559,075   
10,000    

6.00%, 4/1/38

      11,037,700   
   

State Public Works Board Rev.,

   
2,000    

5.00%, 12/1/29, Ser. D

      1,988,260   
3,000    

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

      3,169,800   

 

18   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                 Value  
$  2,000    

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

    $ 2,122,480   
7,915    

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

      8,105,989   
   

Statewide Communities Dev. Auth. Rev.,

   
   

Bentley School,

   
11,180    

zero coupon, 7/1/50

      319,972   
3,760    

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

      3,159,378   
   

Catholic Healthcare West,

   
1,520    

5.50%, 7/1/31, Ser. D

      1,563,943   
1,520    

5.50%, 7/1/31, Ser. E

      1,563,943   
   

Huntington Park Charter School Project, Ser. A,

   
250    

5.15%, 7/1/30

      203,668   
1,250    

5.25%, 7/1/42

      957,787   
500    

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

      386,895   
2,770    

Kaiser Permanente, 5.50%, 11/1/32, Ser. A

      2,787,811   
1,000    

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

      1,047,700   
9,700    

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

      9,765,281   
   

Methodist Hospital Project (FHA),

   
2,400    

6.625%, 8/1/29

      2,863,632   
8,800    

6.75%, 2/1/38

      10,149,656   
3,700    

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

      3,820,213   
   

Sutter Health, Ser. A,

   
5,500    

5.00%, 11/15/43

      5,354,415   
5,600    

6.00%, 8/15/42

      6,097,560   
1,365    

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

      941,850   
1,435    

Statewide Financing Auth. Tobacco Settlement Rev.,
5.625%, 5/1/29, Ser. A

      1,322,008   
   

Tobacco Securitization Agcy. Rev.,

   
4,500    

Alameda Cnty., 6.00%, 6/1/42

      3,392,820   
1,800    

Stanislaus Cnty., 5.875%, 6/1/43, Ser. A

      1,328,670   
3,100    

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

      3,030,405   
1,000    

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

      985,080   
   

Univ. of California Rev.,

   
5,500    

4.75%, 5/15/35, Ser. F (AGM) (j)

      5,544,000   
5,000    

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

      5,028,500   
5,650    

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

      5,658,870   
10,000    

Ventura Cnty. Community College Dist., GO,

   
   

5.00%, 8/1/27, Ser. A (NPFGC) (j)

      10,259,600   
       

 

 

 
   

Total California Municipal Bonds & Notes (cost-$355,105,217)

      373,450,097   
       

 

 

 

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     19   


Table of Contents

PIMCO California Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                 Value  

CALIFORNIA VARIABLE RATE NOTES (a)(c)(h) – 5.8%

   
$  6,035    

Desert Community College Dist., GO, 9.44%, 8/1/32, Ser. 3016-1 (AGC) (g)

    $ 6,356,907   
7,500    

JPMorgan Chase Putters/Drivers Trust Rev., 9.463%, 5/15/40, Ser. 3838 (g)

      8,193,900   
4,000    

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

      4,538,480   
5,000    

San Diego Community College Dist., GO, 9.936%, 2/1/17

      5,673,450   
       

 

 

 
   

Total California Variable Rate Notes (cost-$22,326,577)

      24,762,737   
       

 

 

 
       

OTHER MUNICIPAL BONDS & NOTES – 4.8%

   
    New Jersey – 0.7%    
   

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

   
1,300    

4.75%, 6/1/34

      890,903   
3,000    

5.00%, 6/1/41

      2,071,710   
       

 

 

 
          2,962,613   
       

 

 

 
    New York – 0.3%    
1,250    

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

      1,266,950   
       

 

 

 
    Ohio – 0.4%    
2,250    

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

      1,574,775   
       

 

 

 
    Puerto Rico – 1.0%    
   

Sales Tax Financing Corp. Rev.,

   
1,600    

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

      1,612,688   
2,500    

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

      2,549,150   
       

 

 

 
          4,161,838   
       

 

 

 
    Rhode Island – 2.4%    
11,000    

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

      10,441,970   
       

 

 

 
   

Total Other Municipal Bonds & Notes (cost-$18,782,818)

      20,408,146   
       

 

 

 
       

SHORT-TERM INVESTMENTS – 2.4%

   
    California Variable Rate Demand Notes (i) – 2.4%    
1,500    

Health Facs. Financing Auth. Rev., Adventist Health Systems, 0.06%, 12/1/11, Ser. A

      1,500,000   
4,000    

Pollution Control Financing Auth. Rev., Pacific Gas & Electric, 0.08%, 12/1/11, Ser. F

      4,000,000   
4,900    

Statewide Communities Dev. Auth. Rev. Childrens Hospital, 0.06%, 12/1/11, Ser. B

      4,900,000   
       

 

 

 
   

Total Short-Term Investments (cost-$10,400,000)

      10,400,000   
       

 

 

 
   

Total Investments (cost-$406,614,612) – 100.0%

    $ 429,020,980   
       

 

 

 

 

20   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited)

 

Principal
Amount
(000s)
                 Value  

NEW YORK MUNICIPAL BONDS & NOTES – 90.4%

   
$1,000    

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

    $ 992,200   
2,400    

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

      1,982,424   
9,000    

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

      9,512,370   
   

Liberty Dev. Corp. Rev.,

   
1,400    

5.625%, 7/15/47

      1,386,084   
1,300    

6.375%, 7/15/49

      1,340,092   
   

Goldman Sachs Headquarters,

   
4,120    

5.25%, 10/1/35 (j)

      4,175,867   
3,000    

5.25%, 10/1/35

      3,040,680   
3,500    

5.50%, 10/1/37

      3,528,665   
500    

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

      509,435   
   

Metropolitan Transportation Auth. Rev.,

   
1,850    

5.00%, 11/15/30, Ser. A (AGM)

      1,903,946   
2,000    

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

      2,112,620   
7,300    

5.25%, 11/15/31, Ser. E

      7,520,095   
7,000    

5.35%, 7/1/31, Ser. B

      7,144,410   
5,000    

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

      5,338,250   
7,000    

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

      7,483,770   
2,870    

Mortgage Agcy. Rev., 4.75%, 10/1/27, Ser. 128

      2,890,607   
2,400    

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

      1,862,400   
4,000    

New York City, GO, 5.00%, 3/1/33, Ser. I

      4,064,600   
1,500    

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

      1,564,410   
   

New York City Industrial Dev. Agcy. Rev.,

   
975    

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

      1,003,606   
1,415    

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

      1,336,043   
1,500    

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

      1,580,550   
1,135    

Staten Island Univ. Hospital Project, 6.45%, 7/1/32, Ser. C
(Pre-refunded @ $101, 7/1/12) (b)

      1,184,509   
1,500    

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

      1,552,605   
   

Yankee Stadium,

   
750    

5.00%, 3/1/31 (FGIC)

      755,288   
1,900    

5.00%, 3/1/36 (NPFGC)

      1,876,193   
4,900    

7.00%, 3/1/49 (AGC)

      5,533,031   
1,000    

New York City Municipal Water Finance Auth. Water & Sewer Rev., 5.25%, 6/15/40, Ser. EE

      1,075,170   
500    

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

      523,610   
   

New York City Transitional Finance Auth. Rev.,

   
3,745    

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

      3,833,682   
2,255    

5.00%, 11/1/27, Ser. B (Pre-refunded @ $100, 11/1/12) (b)

      2,350,770   
5,000    

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

      5,260,000   

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     21   


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                 Value  
$6,000    

New York Liberty Dev. Corp. Rev., World Trade Center Project, 5.75%, 11/15/51

    $ 6,358,680   
1,000    

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

      1,064,720   
   

Port Auth. of New York & New Jersey Rev.,

   
3,600    

5.00%, 4/15/32, Ser. 125 (AGM)

      3,673,224   
1,400    

JFK International Air Terminal, 6.00%, 12/1/36

      1,472,422   
   

State Dormitory Auth. Rev.,

   
3,000    

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

      3,158,580   
7,490    

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

      8,495,532   
2,600    

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

      2,631,096   
1,500    

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

      1,605,930   
1,320    

Long Island Univ., 5.25%, 9/1/28 (Radian)

      1,320,607   
   

Memorial Sloan-Kettering Cancer Center,

   
2,750    

5.00%, 7/1/35, Ser. 1

      2,834,810   
2,000    

5.00%, 7/1/36, Ser. A-1

      2,079,360   
2,000    

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

      2,034,940   
2,100    

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

      2,205,399   
1,000    

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

      1,019,320   
600    

North Shore-Long Island Jewish Health System,

   
   

5.50%, 5/1/37, Ser. A

      629,700   
5,000    

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

      4,823,950   
   

Teachers College,

   
4,270    

5.00%, 7/1/32 (NPFGC)

      4,293,058   
3,000    

5.50%, 3/1/39

      3,162,540   
1,000    

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

      1,057,320   
3,000    

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

      3,084,600   
5,000    

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

      5,329,000   
1,000    

State Thruway Auth. Rev., 4.75%, 1/1/29, Ser. G (AGM)

      1,035,490   
6,000    

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

      6,324,900   
   

Triborough Bridge & Tunnel Auth. Rev.,

   
710    

5.00%, 1/1/32, Ser. A (FGIC-TCRS)(Pre-refunded @ $100, 1/1/12) (b)

      712,457   
5,000    

5.25%, 11/15/34, Ser. A-2 (j)

      5,388,150   
150    

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

      150,670   
1,815    

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

      1,317,018   
2,000    

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

      2,019,940   
1,490    

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

      1,571,950   
1,000    

Yonkers Economic Dev. Corp. Rev., 6.00%, 10/15/30, Ser. A

      956,450   
600    

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

      624,930   
       

 

 

 
   

Total New York Municipal Bonds & Notes (cost-$171,888,518)

      178,654,725   
       

 

 

 

 

22   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO New York Municipal Income Fund II Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

Principal
Amount
(000s)
                 Value  

OTHER MUNICIPAL BONDS & NOTES – 6.7%

   
    Florida – 0.6%    
$1,000    

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

    $ 1,069,230   
       

 

 

 
    Louisiana – 0.5%    
1,000    

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

      1,064,890   
       

 

 

 
    Ohio – 0.5%    
1,435    

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

      1,004,356   
       

 

 

 
    Puerto Rico – 4.6%    
5,675    

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

      4,621,209   
   

Sales Tax Financing Corp. Rev.,

   
2,000    

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

      2,015,860   
1,300    

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

      1,325,558   
1,000    

5.75%, 8/1/37, Ser. A

      1,061,510   
       

 

 

 
          9,024,137   
       

 

 

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

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

      1,028,150   
       

 

 

 
   

Total Other Municipal Bonds & Notes (cost-$13,739,090)

      13,190,763   
       

 

 

 
       

NEW YORK VARIABLE RATE NOTES (a)(c)(g)(h) – 2.8%

   
5,000    

JPMorgan Chase Putters/Drivers Trust Rev.,

   
   

9.41%, 7/1/33, Ser. 3382 (cost-$4,880,512)

      5,611,350   
       

 

 

 
       

SHORT-TERM INVESTMENTS – 0.1%

   
    U.S. Treasury Obligations (k) – 0.1%    
199    

U.S. Treasury Bills,
0.025%, 4/5/12 (cost-$198,983)

      198,983   
       

 

 

 
   

Total Investments (cost-$190,707,103) – 100.0%

    $ 197,655,821   
       

 

 

 

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     23   


Table of Contents

PIMCO Municipal Income Funds II Notes to Schedule of Investments

November 30, 2011 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $23,097,725, $26,219,372, and $5,611,350 representing 2.1%, 6.1% and 2.8% of total investments in Municipal II, California Municipal II, and New York Municipal II, respectively.  
(b)   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).  
(c)   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.  
(d)   When-issued. To be settled after November 30, 2011.  
(e)   In default.  
(f)   Fair-Valued – Security with an aggregate value of $3,527,764, representing 0.3% of total investments in Municipal II. See Note 1(a) and Note 1(b) in the Notes to Financial Statements.  
(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, 2011.  
(h)   Variable Rate Notes – Instruments whose interest rates change on specified dates (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, 2011.  
(i)   Date shown is date of next put.  
(j)   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 each Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  
(k)   Rates reflect the effective yields at purchase date.  

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
CA St. Mtg.     -      insured by California State Mortgage
CP     -      Certificates of Participation
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GNMA     -      insured by Government National Mortgage Association
GO     -      General Obligation Bond
GTD     -      Guaranteed
IBC     -      Insurance Bond Certificate
NPFGC     -      insured by National Public Finance Guarantee Corp.
PSF     -      Public School Fund
Radian     -      insured by Radian Guaranty, Inc.
TCRS     -      Temporary Custodian Receipts

 

24   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11   See accompanying Notes to Financial Statements


Table of Contents

 

 

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11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     25   


Table of Contents

PIMCO Municipal Income Funds II Statements of Assets and Liabilities

November 30, 2011 (unaudited)

 

 
        Municipal II         California
Municipal II
        New York
Municipal II
 
     
Assets:                  

Investments, at value (cost-$1,058,531,108, $406,614,612 $190,707,103, respectively)

      $1,084,258,239          $429,020,980          $197,655,821   

Cash

      3,626,624          12,067,314          2,922,425   

Interest receivable

      18,519,108          9,167,951          3,540,902   

Receivable for investments sold

      6,705,190                   2,915,808   

Prepaid expenses and other assets

      56,145          57,270          24,341   

Deposits with brokers

                        231,000   

Total Assets

      1,113,165,306          450,313,515          207,290,297   
     
Liabilities:                  

Payable for floating rate notes issued

      77,979,473          41,020,833          13,851,894   

Payable for investments purchased

      14,883,450                     

Dividends payable to common and preferred shareholders

      3,941,349          1,968,508          721,241   

Interest payable

      721,209          2,248,319          987,811   

Investment management fees payable

      498,727          198,454          94,342   

Accrued expenses and other liabilities

      335,369          1,878,923          251,045   

Total Liabilities

      98,359,577          47,315,037          15,906,333   

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       $647,805,729          $239,998,478          $112,383,964   
     
Composition of Net Assets Applicable to Common Shareholders:                  

Common Shares:

                 

Par value ($0.00001 per share)

      $605          $314          $109   

Paid-in-capital in excess of par

      854,907,979          432,827,598          152,902,915   

Undistributed (dividends in excess of) net investment income

      18,700,999          (2,614,761)          2,147,284   

Accumulated net realized loss

      (251,527,206)          (212,775,552)          (49,634,005)   

Net unrealized appreciation of investments

      25,723,352          22,560,879          6,967,661   
Net Assets Applicable to Common Shareholders       $647,805,729          $239,998,478          $112,383,964   

Common Shares Issued and Outstanding

      60,510,483          31,438,080          10,852,987   
Net Asset Value Per Common Share       $10.71          $7.63          $10.36   

 

26   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds II Statements of Operations

Six Months ended November 30, 2011 (unaudited)

 

 
        Municipal II         California
Municipal II
        New York
Municipal II
 
     
Investment Income:                  

Interest

      $31,157,999          $13,025,176          $5,400,714   
     
Expenses:                  

Investment management fees

      3,258,710          1,304,706          619,492   

Interest expense

      314,730          188,454          55,549   

Auction agent fees and commissions

      288,238          134,644          64,523   

Custodian and accounting agent fees

      81,499          60,617          34,969   

Trustees’ fees and expenses

      50,049          16,596          9,374   

Legal fees

      46,802          10,394          3,644   

Shareholder communications

      35,250          23,535          17,354   

New York Stock Exchange listing fees

      28,112          14,606          12,331   

Audit and tax services

      18,803          24,519          15,101   

Transfer agent fees

      14,426          14,644          16,314   

Insurance expense

      11,673          4,682          2,371   

Miscellaneous

      7,119          6,141          5,852   

Total Expenses

      4,155,411          1,803,538          856,874   

Less: investment management fees waived

      (210,253)          (84,102)          (39,909)   

custody credits earned on cash balances

      (652)          (317)          (190)   

Net Expenses

      3,944,506          1,719,119          816,775   
     
Net Investment Income       27,213,493          11,306,057          4,583,939   
     
Realized and Change In Unrealized Gain (Loss)                  

Net realized gain (loss) on:

                 

Investments

      2,238,261          4,500,370          (49,418)   

Futures contracts

      562,943          224,084          109,309   

Swaps

      (18,499,218)          (11,575,764)          (3,804,241)   

Net change in unrealized appreciation/depreciation of:

                 

Investments

      40,863,125          11,096,036          5,194,737   

Swaps

      6,850,035          4,176,010          1,153,882   

Net realized and change in unrealized gain on investments, futures contracts and swaps

      32,015,146          8,420,736          2,604,269   

Net Increase in Net Assets Resulting from Investment Operations

      59,228,639          19,726,793          7,188,208   

Dividends on Preferred Shares from Net Investment Income

      (402,733)          (178,871)          (87,077)   

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

      $58,825,906          $19,547,922          $7,101,131   

 

See accompanying Notes to Financial Statements   11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     27   


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, 2011
(unaudited)
        Year ended
May 31, 2011
 
Investment Operations:            

Net investment income

      $27,213,493          $54,597,730   

Net realized gain (loss) on investments, futures contracts and swaps

      (15,698,014)          7,846,166   

Net change in unrealized appreciation/depreciation of investments and swaps

      47,713,160          (52,677,814)   

Net increase in net assets resulting from investment operations

      59,228,639          9,766,082   
Dividends on Preferred Shares from Net Investment Income       (402,733)          (1,520,460)   

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

      58,825,906          8,245,622   

Dividends to Common Shareholders from Net Investment Income

      (23,572,608)          (46,931,445)   
   
Common Share Transactions:            

Reinvestment of dividends

      1,752,913          3,896,483   

Total increase (decrease) in net assets applicable to common shareholders

      37,006,211          (34,789,340)   
   
Net Assets Applicable to Common Shareholders:            

Beginning of period

      610,799,518          645,588,858   

End of period (including undistributed (dividends in excess of) net investment income of $18,700,999 and $15,462,847; $(2,614,761) and $(1,965,053); $2,147,284 and $1,959,285; respectively)

      $647,805,729          $610,799,518   
   
Common Shares Issued in Reinvestment of Dividends       167,301          373,938   

 

28   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11   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, 2011
(unaudited)
      Year ended
May 31, 2011
        Six Months
ended
November 30, 2011
(unaudited)
        Year ended
May 31, 2011
 
                   
$11,306,057       $23,136,186          $4,583,939          $9,489,719   
(6,851,310)       62,159          (3,744,350)          (1,115,356)   
15,272,046       (21,991,348)          6,348,619          (8,091,130)   
19,726,793       1,206,997          7,188,208          283,233   
(178,871)       (689,435)          (87,077)          (329,688)   
       
19,547,922       517,562          7,101,131          (46,455)   
(11,776,894)       (23,452,319)          (4,308,863)          (8,576,979)   
       
                   
741,629       1,604,973          335,419          718,710   
8,512,657       (21,329,784)          3,127,687          (7,904,724)   
       
                   
231,485,821       252,815,605          109,256,277          117,161,001   
       
$239,998,478       $231,485,821          $112,383,964          $109,256,277   
       
84,255       183,513          32,053          67,458   

 

See accompanying Notes to Financial Statements   11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     29   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (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 and the rules and regulations thereunder, as amended. Allianz Global Investors Fund Management LLC (the “Investment Manager”) serves as the Investment Manager and is an indirect, wholly-owned subsidiary of Allianz Asset Management of America L.P. (“Allianz Global”). Allianz Global is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has an unlimited amount of $0.00001 par value per share of common shares authorized.

 

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 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 is no guarantee 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 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 May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). FASB concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRSs. The ASU is effective prospectively during interim or annual periods beginning on or after December 15, 2011. The Funds’ management is evaluating the implications of this change.

 

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.

 

Portfolio securities and other financial instruments for which market quotations are not readily available, or for which a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees, including certain fixed income securities which may be valued with reference to securities whose prices are more readily available. The Funds’ investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the 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 basis are marked to market daily until settlement at the forward settlement date. 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.

 

30   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

 

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 Fund’s 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 (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges

   

Level 3 — valuations based on significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

 

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 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 technique used.

 

The valuation techniques used by the Funds to measure fair value during the six months ended November 30, 2011 maximized the use of observable inputs and minimized the use of unobservable inputs. When fair valuing securities, the Funds utilized option adjusted spread pricing techniques.

 

The inputs or methodology used for valuing securities is 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 GAAP.

 

Municipal Bonds & Notes and Variable Rate Notes — Municipal bonds and 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 insurance. To the extent that these inputs are observable, the values of municipal bonds and 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.

 

U.S. Treasury Obligations — U.S. Treasury obligations are valued by independent pricing services based on pricing models that evaluate the mean between the most recently quoted bid and ask price. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable U.S. Treasury issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Treasury obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

The Funds’ policy is to recognize transfers between levels at the end of the reporting period.

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     31   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

 

A summary of the inputs used at November 30, 2011 in valuing each Fund’s assets and liabilities is listed below (Refer to Schedules of Investments for detailed information on Investments in Securities and Other Financial Instruments):

 

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

Municipal Bonds & Notes:

       

California

        —      $ 153,035,621      $ 3,527,764      $ 156,563,385   

All Other

           906,945,141               906,945,141   

Variable Rate Notes

           20,749,713               20,749,713   
   
Total Investments          $ 1,080,730,475      $ 3,527,764      $ 1,084,258,239   
   
California Municipal II:        
     Level 1 –
Quoted Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
11/30/11
 
Investments in Securities – Assets        

California Municipal Bonds & Notes

           $373,450,097               $373,450,097   

California Variable Rate Notes

           24,762,737               24,762,737   

Other Municipal Bonds & Notes

           20,408,146               20,408,146   

Short-Term Investments

           10,400,000               10,400,000   
   
Total Investments            $429,020,980               $429,020,980   
   
New York Municipal II:        
     Level 1 –
Quoted Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
11/30/11
 
Investments in Securities – Assets        

New York Municipal Bonds & Notes

           $178,654,725               $178,654,725   

Other Municipal Bonds & Notes

           13,190,763               13,190,763   

New York Variable Rate Notes

           5,611,350               5,611,350   

Short-Term Investments

           198,983               198,983   
   
Total Investments            $197,655,821               $197,655,821   
   

 

There were no significant transfers between Levels 1 and 2 during the six months ended November 30, 2011.

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the six months ended November 30, 2011, was as follows (not applicable for California Municipal II and New York Municipal II):

 

Municipal II:                  
     Beginning
Balance
5/31/11
    Purchases     Sales     Accrued
Discounts
(Premiums)
    Net
Realized
Gain (Loss)
    Net Change
in Unrealized
Appreciation/
Depreciation
    Transfers
into
Level 3
    Transfers
out of
Level 3
    Ending
Balance
11/30/11
 
Investments in Securities – Assets               

Municipal Bonds & Notes:

  

               

California

         $ 3,700,000      $ (310,000                 $ 137,764                    $ 3,527,764   
   
Total Investments          $ 3,700,000      $ (310,000                 $ 137,764                    $ 3,527,764   
   

 

32   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

The net change in unrealized appreciation/depreciation of Level 3 investments which Municipal II held at November 30, 2011 was $137,764. Net change in unrealized appreciation/depreciation is reflected on the Statements of Operations.

 

(c) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Securities purchased and sold on a when-issued basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on an identified cost basis. Interest income adjusted for the accretion of discounts and amortization of premiums is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income over the lives of the respective securities.

 

(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, 2011. 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 monthly to common shareholders. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions to their respective shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from 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) Reverse Repurchase Agreements

In a reverse repurchase agreement, the Funds sell securities to a bank or broker-dealer and agree to repurchase the securities at a mutually agreed upon date and price. Generally, the effect of such a transaction is that the Funds can recover and reinvest all or most of the cash invested in portfolio securities involved during the term of the reverse repurchase agreement and still be entitled to the returns associated with those portfolio securities. Such transactions are advantageous if the interest cost to the Funds of the reverse repurchase transaction is less than the returns they obtain on investments purchased with the cash. To the extent the Funds do not cover their positions in reverse repurchase agreements (by segregating liquid assets at least equal in amount to the forward purchase commitment), the Funds’ uncovered obligations under the agreements will be subject to the Funds’ limitations on borrowings. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities that the Funds are obligated to repurchase under the agreements may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds’ use of the proceeds of the agreement may be restricted pending determination by the other party, or their trustee or receiver, whether to enforce the Funds’ obligation to repurchase the securities. There were no reverse repurchase agreements open as of November 30, 2011.

 

(g) 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

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     33   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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 special purpose trust, which are not accounted for as secured borrowings. The Funds may also invest in Inverse Floaters for the purpose of increasing leverage.

 

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

 

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

 

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

 

(h) When-Issued/Delayed-Delivery Transactions

When-issued or delayed-delivery transactions involve a commitment to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Funds will set aside and maintain until the settlement date in a designated account, liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed-delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations; consequently, such fluctuations are taken into account when determining the net asset value. The Funds may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a realized gain or loss. When a security is sold on a delayed-delivery basis, the Funds do not participate in future gains and losses with respect to the security.

 

(i) 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.

 

(j) Custody Credits on Cash Balances

The Funds benefit from an expense offset arrangement with their custodian bank, whereby uninvested cash balances 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.

 

34   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

 

(k) Interest Expense

Interest expense primarily relates to the Funds’ participation in floating rate notes held by third parties in conjunction with Inverse Floater transactions.

 

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, and credit risks.

 

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

 

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

 

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 Funds’ Sub-Adviser, Pacific Investment Management Company LLC (the “Sub-Adviser”), an affiliate of the Investment Manager, seeks to minimize the Funds’ counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

 

Leverage will 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

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     35   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

2. Principal Risks (continued)

 

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 Operations, and such derivatives do not qualify for hedge accounting treatment.

 

(a) Swap Agreements

Swap agreements are bilaterally negotiated agreements between the Funds and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements are privately negotiated in the over-the-counter market (“OTC Swaps”) and may be executed in a multilateral or other trade facility platform, such as a registered commodities exchange (“Centrally cleared swaps”). The Funds enter into credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements in order to manage their exposure to credit, currency and interest rate risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

 

OTC swap payments received or made at the beginning of the measurement period are reflected as such on the Funds’ Statements of Assets and Liabilities and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). These upfront payments if any, are recorded as realized gains or losses on the Funds’ Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Funds’ Statements of Operations. Net periodic payments received or paid by the Funds if any, are included as part of realized gains or losses on the Funds’ Statements of Operations. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/depreciation on the Funds’ Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for variation margin on centrally cleared swaps on the Funds’ Statements of Assets and Liabilities.

 

Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized on the Funds’ Statements of Assets and Liabilities. Such risks include the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates.

 

Interest Rate Swap Agreements — Interest rate swap agreements involve the exchange by the Funds with a counterparty of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments, with respect to the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the counterparty may terminate the swap transaction in whole at zero cost by a predetermined date and time prior

 

36   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

3. Financial Derivative Instruments (continued)

 

to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different money markets.

 

The following is a summary of the fair valuation of the Funds’ derivatives categorized by risk exposure.

 

The effect of derivatives on the Statements of Operations for the six months ended November 30, 2011:

 

Municipal II:  
Location   Interest Rate
Contracts
 
Net realized gain (loss) on:  

Futures contracts

  $ 562,943   

Swaps

    (18,499,218
 

 

 

 
Total net realized gain (loss)   $ (17,936,275
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Swaps

  $ 6,850,035   
 

 

 

 
California Municipal II:  
Location   Interest Rate
Contracts
 
Net realized gain (loss) on:  

Futures contracts

  $ 224,084   

Swaps

    (11,575,764
 

 

 

 
Total net realized gain (loss)   $ (11,351,680
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Swaps

  $ 4,176,010   
 

 

 

 
New York Municipal II:  
Location   Interest Rate
Contracts
 
Net realized gain (loss) on:  

Futures contracts

  $ 109,309   

Swaps

    (3,804,241
 

 

 

 
Total net realized gain (loss)   $ (3,694,932
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Swaps

  $ 1,153,882   
 

 

 

 

 

During the six months ended November 30, 2011 the average volume (measured at each fiscal quarter end) of derivative activity was:

 

     Interest  Rate
Swap
Agreements(1)
 

Municipal II

  $ 39,400   

California Municipal II

    26,633   

New York Municipal II

    8,100   

 

(1)   

Notional amount (in thousands)

 

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     37   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

 

4. Investment Manager/Sub-Adviser

Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of the Funds’ Board of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, the Funds’ investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.65% of each Fund’s average daily net assets, inclusive of daily net assets attributable to any Preferred Shares outstanding.

 

The Investment Manager has voluntarily agreed to waive a portion of its fees for each Fund at the annual rate of 0.05% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that may be outstanding, for the period July 1, 2011 through June 30, 2012. For the six months ended November 30, 2011, each Fund paid investment management fees at an effective rate of 0.60% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that were outstanding.

 

The Investment Manager has retained the Sub-Adviser to manage the Funds’ investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Funds’ investment decisions. The Investment Manager, and not the Funds, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.

 

5. Investments in Securities

Purchases and sales of investments, other than short-term securities and U.S. government obligations, for the six months ended November 30, 2011:

 

     Municipal II     California
Municipal II
    New York
Municipal II
 

Purchases

  $ 161,085,765      $ 36,584,128      $ 25,986,227   

Sales

    155,521,084        48,776,892        34,050,243   

 

(a) Floating rate notes:

 

The weighted average daily balance of floating rate notes outstanding during the six months ended November 30, 2011 for Municipal II, California Municipal II and New York Municipal II was $77,979,473, $40,220,833 and $13,851,894 at a weighted average interest rate, including fees, of 0.40%, 0.46% and 0.40%, respectively.

 

6. Income Tax Information

Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.

 

The cost basis of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at November 30, 2011 were:

 

     Cost of
Investments
    Gross
Unrealized
Appreciation
    Gross
Unrealized
Depreciation
    Net
Unrealized
Appreciation
 

Municipal II

  $ 978,992,892      $ 53,181,997      $ 26,087,445      $ 27,094,552   

California Municipal II

    364,379,991        28,470,251        6,614,480        21,855,771   

New York Municipal II

    176,640,052        9,781,788        2,826,216        6,955,572   

 

Differences between book and tax cost were attributable to inverse floater transactions.

 

38   PIMCO Municipal Income Funds II Semi-Annual Report   11.30.11


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

 

7. Auction-Rate Preferred Shares

Municipal II has 2,936 shares of Preferred Shares Series A, 2,936 shares of Preferred Shares Series B, 2,936 shares of Preferred Shares Series C, 2,936 shares of Preferred Shares Series D and 2,936 shares of Preferred Shares Series E outstanding, each with a liquidation preference value of $25,000 per share plus any accumulated, unpaid dividends.

 

California Municipal II has 1,304 shares of Preferred Shares Series A, 1,304 shares of Preferred Shares Series B, 1,304 shares of Preferred Shares Series C, 1,304 shares of Preferred Shares Series D and 1,304 shares of Preferred Shares Series E outstanding, each with a liquidation preference value of $25,000 per share plus any accumulated, unpaid dividends.

 

New York Municipal II has 1,580 shares of Preferred Shares Series A and 1,580 shares of Preferred Shares Series B outstanding, each with a liquidation preference value of $25,000 per share plus any accumulated, unpaid dividends.

 

Dividends are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures (or through default provisions in the event of failed auctions). Distributions of net realized capital gains, if any, are paid annually.

 

For the six months ended November 30, 2011, the annualized dividend rates for each Fund ranged from:

 

     High     Low     At
November 30, 2011
 

Municipal II:

     

Series A

    0.305     0.107     0.213

Series B

    0.305     0.107     0.198

Series C

    0.305     0.110     0.229

Series D

    0.305     0.107     0.229

Series E

    0.305     0.107     0.229

California Municipal II:

     

Series A

    0.305     0.107     0.213

Series B

    0.305     0.107     0.198

Series C

    0.305     0.110     0.229

Series D

    0.305     0.107     0.229

Series E

    0.305     0.107     0.229

New York Municipal II:

     

Series A

    0.305     0.110     0.229

Series B

    0.305     0.107     0.229

 

The Funds are subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Funds from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation preference value plus any accumulated, unpaid dividends.

 

Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote separately as a class to elect two Trustees and on any matters affecting the rights of the Preferred Shares.

 

Since mid-February 2008, holders of auction-rate preferred shares (“ARPS”) issued by the Funds have been directly impacted by an unprecedented lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and the ARPS holders have continued to receive dividends at the defined “maximum rate” equal to the higher of the 30-day “AA” Composite Commercial Paper Rate multiplied by 110% or the Taxable Equivalent

 

11.30.11   PIMCO Municipal Income Funds II Semi-Annual Report     39   


Table of Contents

PIMCO Municipal Income Funds II Notes to Financial Statements

November 30, 2011 (unaudited)

 

7. Auction-Rate Preferred Shares (continued)

 

of the Short-Term Municipal Obligations Rate-defined as 90% of the quotient of (A) the per annum rate expressed on an interest equivalent basis equal to the Kenny S&P 30-day High Grade Index divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal) multiplied by 110% (which is a function of short-term interest rates and typically higher than the rate that would have otherwise been set through a successful auction). If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Funds’ common shareholders could be adversely affected.

 

See Note 8. Legal Proceedings, for a discussion of shareholder demand letters received by Municipal II and certain other closed-end funds managed by the Investment Manager.

 

8. Legal Proceedings

Beginning in May 2010, several closed-end funds managed by the Investment Manager, including Municipal II and certain other funds sub-advised by the Sub-Adviser, each received a demand letter from a law firm on behalf of certain common shareholders. The demand letters allege that the Investment Manager and certain officers and trustees of the funds breached their fiduciary duties in connection with the redemption at par of a portion of the funds’ ARPS and demand that the boards of trustees take certain action to remedy those alleged breaches. After conducting an investigation in August 2010, the independent trustees of Municipal II rejected the demands made in the demand letters.

 

The Investment Manager and the Sub-Adviser believe that this matter is not likely to have a material adverse effect on the Funds or on their ability to perform their respective investment advisory activities relating to the Funds.

 

9. Subsequent Events

On December 1, 2011, the following dividends were declared to common shareholders payable January 3, 2012 to shareholders of record on December 12, 2011:

 

Municipal II      $0.065 per common share
California Municipal II      $0.0625 per common share
New York Municipal II      $0.06625 per common share

 

Paul Belica retired from the Funds’ Board of Trustees on December 31, 2011.