PIMCO California Municipal Income Fund
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number  811-10379

 

PIMCO California Municipal Income Fund

(Exact name of registrant as specified in charter)

 

1633 Broadway, New York, NY 10019

(Address of principal executive offices zip code)

 

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

(Name and address of agent for service)

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

Date of fiscal year end: April 30, 2012

Date of reporting period: April 30, 2012

 

 

 


Table of Contents

Item 1. REPORT TO SHAREHOLDERS

 

LOGO

 

Annual Report

 

April 30, 2012

 

 

 

PIMCO Municipal Income Fund

PIMCO California Municipal Income Fund

PIMCO New York Municipal Income Fund

 

LOGO


Table of Contents

Contents

 

Letter to Shareholders     2-3   
Fund Insights     4   
Performance & Statistics     5-6   
Schedules of Investments     7-21   
Statements of Assets and Liabilities     22   
Statements of Operations     23   
Statements of Changes in Net Assets     24-25   
Notes to Financial Statements     26-39   
Financial Highlights     40-42   
Report of Independent Registered Public Accounting Firm     43   
Tax Information/Annual Shareholder Meeting Results/ Changes to Board of Trustees     44   
A Note Regarding Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements     45   
Privacy Policy     46   
Dividend Reinvestment Plan/Proxy Voting Policies & Procedures     47-48   
Board of Trustees     49-50   
Fund Officers     51   

 

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LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

Dear Shareholder:

 

Municipal bonds recorded strong gains during the fiscal twelve-month reporting period ended April 30, 2012. These gains were achieved despite significant market volatility and political uncertainty and an increased supply of municipal securities that came to market. During the reporting period, the strengthening U.S. economy encouraged investors to move out of cash and into municipal bonds.

 

For the fiscal twelve-month period ended April 30, 2012:

 

 

PIMCO Municipal Income Fund rose 30.95% on net asset value (“NAV”) and 27.20% on market price.

 

 

PIMCO California Municipal Income Fund rose 30.75% on NAV and 32.94% on market price.

 

 

PIMCO New York Municipal Income Fund rose 22.31% on NAV and 26.36% on market price.

The Fiscal Twelve-Month Period In Review

The fiscal twelve-month reporting period began with 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, expanding at an annual pace of 1.3%. GDP accelerated to an annual rate of 1.8% between July and September 2011, and to a 3.0% rate between October and December 2011. This momentum reversed during the first quarter of 2012 as GDP moved to a 1.9% annual pace.

 

The Federal Reserve (the “Fed”) kept its closely watched Fed Funds rate (the interest rate at which depository institutions trade funds held by the Fed with each other, usually on an overnight basis) in the 0.0% to 0.25% range for the entire fiscal twelve-month period. This in turn kept short-term U.S. Treasury yields and municipal bond yields (which tend to track Treasuries) quite low. Fed Chairman Ben Bernanke revealed that the Fed would maintain short-term interest rates in this range through late 2014. He also indicated that the Fed has not ruled out further attempts to stimulate the economy.

 

Although Treasury yields bounced up and down, the overall trend during the twelve-month fiscal reporting period was lower. The benchmark ten-year Treasury bond began the fiscal period yielding 3.32% and stood at 1.95% at April 30, 2012. This drop was likely a reflection of considerable market uncertainty and the extraordinary volatility that characterized much of the twelve-month period. This volatility occurred both overseas, where Europe’s sovereign debt crisis seemed to wax and wane repeatedly, and in Washington, where a hyperpartisan political standoff over taxes and spending led to a downgrade of the government’s long-term credit rating by Standard & Poor’s.

 

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As the twelve-month fiscal reporting period began, new municipal issuance was low; however, it quickly accelerated, as suppliers moved to lock in low interest rates. New issuance rose from approximately $4.2 billion weekly in January to approximately $7.9 billion weekly as the fiscal reporting period drew to a close in April. One report indicated that new municipal issuance in April 2012 was 113% greater than April 2011, yet the market absorbed this increased supply with relative ease.

Outlook

Subsequent to the end of the fiscal reporting period, Europe’s sovereign debt crisis appeared to take another turn for the worse. Investors flocked to the perceived safety of U.S. Treasuries and yields plunged in response. China’s economy is also slowing, and in the U.S., there is growing uncertainty concerning future levels of taxes and spending. In addition, a series of tax cuts are scheduled to expire on

December 31, 2012, and major spending reductions are planned to begin in January 2013. Higher taxes, reduced spending, or both, would almost certainly have a negative impact on the economy in 2013. Consequently, there are many reasons for caution going forward.

 

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

 

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

 

We remain dedicated to serving your investment needs.

 

Sincerely,

 

LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

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

 

4.30.12   PIMCO Municipal Income Funds Annual Report     3   


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PIMCO Municipal Income Funds Fund Insights

April 30, 2012 (unaudited)

 

 

For the twelve month fiscal year ended April 30, 2012, PIMCO Municipal Income Fund returned 30.95% on net asset value (“NAV”) and 27.20% on market price.

 

For the twelve month fiscal year ended April 30, 2012, PIMCO California Municipal Income Fund returned 30.75% on NAV and 32.94% on market price.

 

For the twelve month fiscal year ended April 30, 2012, PIMCO New York Municipal Income Fund returned 22.31 % on NAV and 26.36% on market price.

 

The municipal bond market generated solid results during the twelve month reporting period. The overall municipal market (measured by the Barclays Municipal Bond Index — the “Index”) posted positive returns during ten of the twelve months of the period. Strengthening municipal fundamentals, including rising tax revenues, as well as relatively modest primary market supply drove this performance. In addition, investor demand was generally strong as investors looked to enhance income. Though the municipal market sold off in both October 2011 and March 2012, these bumps proved to be only modest and temporary price declines that ultimately reversed course. The index returned 11.36%, during the twelve-month reporting period.

 

PIMCO Municipal Income Fund and PIMCO New York Municipal Income Fund benefited from an overweighting to revenue bonds versus general obligation bonds. This contributed to results as revenue bonds outperformed general obligations during the reporting period.

 

Each Fund benefited from overweight exposures to the corporate-backed and tobacco sectors as these sectors outperformed the Index. PIMCO Municipal Income Fund and PIMCO California Municipal Income Fund benefited from their overweight positions in the strong performing healthcare sector. PIMCO New York Municipal Income Fund’s overweighting to education enhanced results. PIMCO California Municipal Income Fund benefited from exposure to California issued municipals, as bonds in California generally outperformed the broader market.

 

Underweight duration in comparison to their benchmarks detracted from all three Funds’ performance, as municipal yields declined during the twelve-month period. For PIMCO Municipal Income Fund, a steepening yield curve bias detracted from results, as the municipal curve flattened during the reporting period.

 

PIMCO California Municipal Income Fund’s overweight position to the housing sector detracted from performance, as the housing sector underperformed the benchmark. PIMCO New York Municipal Income Fund’s exposure to municipals issued in New York generally detracted from performance, as New York municipals generally lagged the broader market.

 

All three funds utilized payer interest rate swaps to manage duration in the period that detracted from performance due to the falling rate environment. The funds also utilized Treasury futures during the reporting period to manage the portfolios’ duration, which did not meaningfully impact the Funds’ performance during the period.

 

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PIMCO Municipal Income Funds Performance & Statistics

April 30, 2012 (unaudited)

 

Municipal Income:

 

Total Return(1):   Market Price      NAV  

1 Year

    27.20%         30.95%   

5 Year

    4.37%         5.86%   

10 Year

    7.77%         6.90%   

Commencement of Operations (6/29/01) to 4/30/12

    7.44%         6.77%   

 

Market Price/NAV Performance:

Commencement of Operations (6/29/01) to 4/30/12

LOGO

Market Price/NAV:       

Market Price

    $15.28   

NAV

    $12.93   

Premium to NAV

    18.17%   

Market Price Yield(2)

    6.38%   

Leverage Ratio(3)

    38.62%   

 

Moody’s Rating

(as a % of total investments)

 

LOGO

 

 

California Municipal Income:

Total Return(1):   Market Price      NAV  

1 Year

    32.94%         30.75%   

5 Year

    3.80%         6.13%   

10 Year

    7.15%         7.01%   

Commencement of Operations (6/29/01) to 4/30/12

    6.85%         6.68%   

 

Market Price/NAV Performance:

Commencement of Operations (6/29/01) to 4/30/12

LOGO

Market Price/NAV:       

Market Price

    $14.83   

NAV

    $13.75   

Premium to NAV

    7.85%   

Market Price Yield(2)

    6.23%   

Leverage Ratio(3)

    42.24%   

Moody’s Rating

(as a % of total investments)

 

LOGO

 

 

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PIMCO Municipal Income Funds Performance & Statistics

April 30, 2012 (unaudited)

 

New York Municipal Income:

 

Total Return(1):   Market Price      NAV  

1 Year

    26.36%         22.31%   

5 Year

    1.42%         2.60%   

10 Year

    4.52%         4.44%   

Commencement of Operations (6/29/01) to 4/30/12

    4.12%         4.30%   

 

Market Price/NAV Performance:

Commencement of Operations (6/29/01)

to 4/30/12

 

LOGO

Market Price/NAV:       

Market Price

    $11.73   

NAV

    $11.38   

Premium to NAV

    3.08%   

Market Price Yield(2)

    5.83%   

Leverage Ratio(3)

    39.75%   

 

Moody’s Rating

(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 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 the Funds’ shares, or changes in the 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 dividend per common share (comprised of net investment income) by the market price per common share at April 30, 2012.

 

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

 

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PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012

 

Principal
Amount
(000s)
         Value  

 

MUNICIPAL BONDS & NOTES – 97.8%

 
  Alabama – 1.0%  
$ 2,500     

Birmingham-Baptist Medical Centers Special Care Facs. Financing Auth. Rev.,
Baptist Health Systems, Inc., 5.875%, 11/15/24, Ser. A

  $ 2,521,800   
 

Huntsville-Redstone Village Special Care Facs. Financing Auth. Rev., Redstone
Village Project,

 
  250     

5.50%, 1/1/28

    245,098   
  885     

5.50%, 1/1/43

    761,675   
  1,350     

Montgomery Medical Clinic Board Rev., Jackson Hospital & Clinic, 5.25%, 3/1/31

    1,371,856   
   

 

 

 
      4,900,429   
   

 

 

 
  Alaska – 0.8%  
  3,280     

Borough of Matanuska-Susitna Rev., Goose Creek Correctional Center, 6.00%, 9/1/32 (AGC)

    3,838,125   
  900     

Industrial Dev. & Export Auth. Rev., Boys & Girls Home, 6.00%, 12/1/36

    482,850   
   

 

 

 
      4,320,975   
   

 

 

 
  Arizona – 5.1%  
  410     

Apache Cnty. Industrial Dev. Auth. Rev.,
Tucson Electric Power Co. Project, 5.875%, 3/1/33, Ser. B

    410,472   
 

Health Facs. Auth. Rev.,

 
  2,050     

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

    2,220,478   
  2,750     

Beatitudes Campus Project, 5.20%, 10/1/37

    2,163,040   
  1,500     

Maricopa Cnty. Pollution Control Corp. Rev.,
Southern California Edison Co., 5.00%, 6/1/35, Ser. A

    1,628,505   
 

Pima Cnty. Industrial Dev. Auth. Rev., Tucson Electric Power Co., Ser. A,

 
  750     

5.25%, 10/1/40

    782,062   
  4,150     

6.375%, 9/1/29

    4,238,395   
  5,000     

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

    5,482,400   
  9,200     

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

    9,373,512   
   

 

 

 
      26,298,864   
   

 

 

 
  Arkansas – 0.5%  
  8,500     

Dev. Finance Auth. Rev., Arkansas Cancer Research Center Project,
zero coupon, 7/1/36 (AMBAC)

    2,777,715   
   

 

 

 
  California – 13.4%  
 

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

 
  2,875     

5.00%, 10/1/34

    3,123,458   
  3,255     

5.00%, 10/1/42

    3,511,982   
  3,000     

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

    3,481,920   
  1,500     

Golden State Tobacco Securitization Corp. Rev., 5.75%, 6/1/47, Ser. A-1

    1,236,075   
 

Health Facs. Financing Auth. Rev.,

 
  2,000     

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

    2,307,340   
  1,500     

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

    1,755,780   
  5,300     

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

    5,834,929   
  2,000     

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

    2,146,580   

 

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PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

 

Principal
Amount
(000s)
         Value  
  California (continued)  
$ 4,175     

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

  $ 4,494,220   
  2,000     

M-S-R Energy Auth. Rev., 6.125%, 11/1/29, Ser. C

    2,334,740   
  1,525     

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

    1,729,548   
  5,000     

Orange Cnty. Airport Rev., 5.25%, 7/1/39, Ser. A

    5,526,450   
  1,600     

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

    1,735,408   
 

State, GO,

 
  700     

5.00%, 11/1/32

    755,699   
  1,200     

5.00%, 6/1/37

    1,261,368   
  2,300     

5.125%, 8/1/36

    2,479,791   
  1,250     

5.25%, 3/1/38

    1,345,913   
  1,900     

5.25%, 11/1/40

    2,081,070   
  500     

5.50%, 3/1/40

    554,560   
  3,200     

6.00%, 4/1/38

    3,699,968   
 

Statewide Communities Dev. Auth. Rev.,

 
  750     

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

    889,740   
  845     

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

    925,799   
 

Methodist Hospital Project (FHA),

 
  2,600     

6.625%, 8/1/29

    3,247,868   
  9,500     

6.75%, 2/1/38

    11,568,625   
  2,000     

Whittier Union High School Dist., GO, zero coupon, 8/1/25

    997,080   
   

 

 

 
      69,025,911   
   

 

 

 
  Colorado – 1.2%  
  500     

Confluence Metropolitan Dist. Rev., 5.45%, 12/1/34

    384,775   
  450     

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

    484,020   
  2,500     

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

    2,707,750   
  500     

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

    621,525   
  400     

Regional Transportation Dist., CP, 5.375%, 6/1/31, Ser. A

    444,928   
  1,500     

Univ. of Colorado Rev., 5.375%, 6/1/38, Ser. A

    1,703,100   
   

 

 

 
      6,346,098   
   

 

 

 
  Connecticut – 1.0%  
  5,000     

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

    5,289,600   
   

 

 

 
  District of Columbia – 1.3%  
  2,500     

Dist. of Columbia Rev., Brookings Institution, 5.75%, 10/1/39

    2,779,325   
  3,750     

Tobacco Settlement Financing Corp. Rev., 6.25%, 5/15/24

    3,767,287   
   

 

 

 
      6,546,612   
   

 

 

 
  Florida – 2.3%  
  850     

Beacon Lakes Community Dev. Dist., Special Assessment, 6.00%, 5/1/38, Ser. A

    835,720   
  4,000     

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

    4,459,520   
  300     

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

    317,076   

 

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PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

 

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

Lee Cnty. Industrial Dev. Auth. Rev.,
Lee Community Charter Foundation, 5.375%, 6/15/37, Ser. A

  $ 450,715   
  1,250     

Miami-Dade Cnty. School Board, CP, 5.375%, 2/1/34, Ser. A (AGC)

    1,352,950   
  3,900     

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

    4,280,718   
   

 

 

 
      11,696,699   
   

 

 

 
  Georgia – 0.4%  
  2,300     

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

    2,080,028   
   

 

 

 
  Illinois – 2.6%  
  5,000     

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

    5,395,700   
 

Finance Auth. Rev.,

 
  400     

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

    477,048   
 

Univ. of Chicago,

 
  190     

5.25%, 7/1/41, Ser. 05-A

    190,351   
  5,000     

5.50%, 7/1/37, Ser. B (h)

    5,602,600   
  1,900     

Springfield Electric Rev., 5.00%, 3/1/36

    2,000,833   
   

 

 

 
      13,666,532   
   

 

 

 
  Indiana – 1.0%  
  1,500     

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

    1,681,950   
  1,000     

Municipal Power Agcy. Rev., 6.00%, 1/1/39, Ser. B

    1,131,480   
  1,900     

Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 7.50%, 9/1/22

    2,415,033   
   

 

 

 
      5,228,463   
   

 

 

 
  Iowa – 1.7%  
 

Finance Auth. Rev.,

 
  4,890     

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

    3,766,718   
 

Edgewater LLC Project,

 
  3,500     

6.75%, 11/15/37

    3,356,395   
  1,500     

6.75%, 11/15/42

    1,420,530   
   

 

 

 
      8,543,643   
   

 

 

 
  Kansas – 0.5%  
  1,000     

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

    1,130,890   
  1,000     

Lenexa City, Tax Allocation, Center East Project, 6.00%, 4/1/27

    604,620   
  650     

Manhattan Rev., Meadowlark Hills Retirement, 5.125%, 5/15/42, Ser. B

    609,823   
   

 

 

 
      2,345,333   
   

 

 

 
  Kentucky – 0.4%  
  1,000     

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

    1,146,170   
  1,000     

Ohio Cnty. Pollution Control Rev., Big Rivers Electric Corp. Project, 6.00%, 7/15/31, Ser. A

    1,072,770   
   

 

 

 
      2,218,940   
   

 

 

 

 

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PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
  Louisiana – 6.3%  
 

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

 
$ 3,930     

Capital Projects & Equipment Acquisition, 6.55%, 9/1/25 (ACA)

  $ 4,328,345   
  400     

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

    449,652   
  750     

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

    824,828   
  2,000     

Public Facs. Auth. Rev., Ochsner Clinic Foundation Project, 6.50%, 5/15/37

    2,260,900   
  24,395     

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

    24,495,995   
   

 

 

 
      32,359,720   
   

 

 

 
  Maryland – 0.4%  
  1,500     

Economic Dev. Corp. Rev., 5.75%, 6/1/35, Ser. B

    1,597,530   
  650     

Health & Higher Educational Facs. Auth. Rev., Charlestown Community, 6.25%, 1/1/41

    722,423   
   

 

 

 
      2,319,953   
   

 

 

 
  Massachusetts – 0.5%  
 

Dev. Finance Agcy. Rev.,

 
  750     

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

    817,440   
 

Linden Ponds, Inc. Fac.,

 
  103     

zero coupon, 11/15/56, Ser. B

    1,192   
  21     

5.50%, 11/15/46, Ser. A-2

    13,905   
  388     

6.25%, 11/15/39, Ser. A-1

    299,192   
  1,500     

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

    1,685,685   
   

 

 

 
      2,817,414   
   

 

 

 
  Michigan – 1.1%  
  1,500     

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

    1,920,795   
  5,000     

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

    3,938,350   
   

 

 

 
      5,859,145   
   

 

 

 
  Minnesota – 0.5%  
  95     

Agricultural & Economic Dev. Board Rev., Health Care Systems, 6.375%, 11/15/29, Ser. A

    95,416   
  100     

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

    99,520   
  1,500     

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

    1,651,170   
  500     

Washington Cnty. Housing & Redev. Auth. Rev.,
Birchwood & Woodbury Projects, 5.625%, 6/1/37, Ser. A

    493,690   
   

 

 

 
      2,339,796   
   

 

 

 
  Missouri – 0.3%  
  1,000     

Joplin Industrial Dev. Auth. Rev., Christian Homes, Inc., 5.75%, 5/15/26, Ser. F

    1,028,960   
  475     

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

    496,095   
   

 

 

 
      1,525,055   
   

 

 

 
  Nevada – 4.1%  
 

Clark Cnty., GO,

 
  5,000     

4.75%, 6/1/30 (AGM)

    5,227,700   
  5,230     

4.75%, 11/1/35 (FGIC-NPFGC) (h)

    5,428,217   
  9,755     

Washoe Cnty., Water & Sewer, GO, 5.00%, 1/1/35 (NPFGC)

    10,280,697   
   

 

 

 
      20,936,614   
   

 

 

 

 

10   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
  New Jersey – 8.6%  
$ 16,550     

Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project, 5.75%, 4/1/31

  $ 17,636,507   
  2,000     

Economic Dev. Auth. Rev., School Facs. Construction, 5.50%, 12/15/34, Ser. Z (AGC)

    2,226,860   
  500     

Health Care Facs. Financing Auth. Rev.,
AHS Hospital Corp., 6.00%, 7/1/37

    586,940   
  2,000     

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

    2,197,540   
 

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

 
  6,600     

4.75%, 6/1/34

    5,114,538   
  11,500     

5.00%, 6/1/41

    9,121,110   
  7,000     

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

    7,602,490   
   

 

 

 
      44,485,985   
   

 

 

 
  New Mexico – 1.5%  
  1,000     

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

    1,081,940   
  6,400     

Hospital Equipment Loan Council Rev.,
Presbyterian Healthcare, 5.00%, 8/1/39

    6,786,304   
   

 

 

 
      7,868,244   
   

 

 

 
  New York – 12.0%  
  14,000     

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

    15,176,560   
 

Liberty Dev. Corp. Rev.,

 
  10,000     

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

    10,967,100   
  10,000     

4 World Trade Center Project, 5.00%, 11/15/44

    10,687,900   
 

Goldman Sachs Headquarters,

 
  7,500     

5.25%, 10/1/35

    8,205,375   
  3,000     

5.50%, 10/1/37

    3,406,920   
  3,000     

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

    3,265,590   
  4,200     

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

    3,133,704   
  3,000     

New York City Municipal Water Finance Auth. Water & Sewer Rev.,
Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1

    3,249,750   
  3,500     

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

    3,841,845   
   

 

 

 
      61,934,744   
   

 

 

 
  North Carolina – 0.3%  
  1,500     

Medical Care Commission Rev., Village at Brookwood, 5.25%, 1/1/32

    1,413,915   
   

 

 

 
  Ohio – 1.9%  
  11,000     

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

    8,586,930   
  500     

Higher Educational Fac. Commission Rev., Univ.
Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A

    543,640   
  500     

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

    536,565   
   

 

 

 
      9,667,135   
   

 

 

 
  Oregon – 0.6%  
  2,000     

Oregon Health & Science Univ. Rev., 5.75%, 7/1/39, Ser. A

    2,290,940   
  600     

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

    656,076   
   

 

 

 
      2,947,016   
   

 

 

 

 

4.30.12   PIMCO Municipal Income Funds Annual Report     11   


Table of Contents

PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
  Pennsylvania – 4.8%  
$ 5,000     

Geisinger Auth. Rev., 5.25%, 6/1/39, Ser. A

  $ 5,485,100   
  2,000     

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

    1,635,940   
 

Higher Educational Facs. Auth. Rev.,

 
  500     

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

    537,290   
  350     

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

    374,276   
 

Lancaster Cnty. Hospital Auth. Rev., Brethren Village Project, Ser. A,

 
  750     

6.25%, 7/1/26

    792,817   
  85     

6.375%, 7/1/30

    89,778   
  1,100     

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

    1,203,147   
  7,000     

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

    7,661,430   
  4,465     

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

    4,473,573   
  500     

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

    537,415   
  2,000     

Turnpike Commission Rev., 5.125%, 12/1/40, Ser. D

    2,117,620   
   

 

 

 
      24,908,386   
   

 

 

 
  Puerto Rico – 0.6%  
  3,000     

Sales Tax Financing Corp. Rev., 5.375%, 8/1/38, Ser. C

    3,254,190   
   

 

 

 
  Rhode Island – 4.6%  
  23,800     

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

    23,908,528   
   

 

 

 
  South Carolina – 0.6%  
  450     

Jobs-Economic Dev. Auth. Rev., Lutheran Homes, 5.50%, 5/1/28

    454,293   
  2,200     

State Ports Auth. Rev., 5.25%, 7/1/40

    2,386,560   
   

 

 

 
      2,840,853   
   

 

 

 
  Tennessee – 2.3%  
  940     

Memphis Health Educational & Housing Fac. Board Rev.,
Wesley Housing Corp. Project, 6.95%, 1/1/20 (a)(b)(e)(i)
(acquisition cost-$935,300; purchased 6/29/01)

    472,350   
 

Tennessee Energy Acquisition Corp. Rev.,

 
  370     

5.00%, 2/1/21, Ser. C

    399,038   
  5,000     

5.00%, 2/1/27, Ser. C

    5,272,500   
  5,000     

5.25%, 9/1/24, Ser. A

    5,505,950   
   

 

 

 
      11,649,838   
   

 

 

 
  Texas – 9.8%  
  1,200     

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

    1,307,340   
  2,000     

Love Field Airport Modernization Corp. Rev.,
Southwest Airlines Co. Project, 5.25%, 11/1/40

    2,069,220   
 

North Harris Cnty. Regional Water Auth. Rev.,

 
  4,200     

5.25%, 12/15/33

    4,591,692   
  4,200     

5.50%, 12/15/38

    4,606,350   

 

12   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
  Texas (continued)  
 

North Texas Tollway Auth. Rev.,

 
$ 2,750     

5.00%, 1/1/38

  $ 2,934,965   
  3,000     

5.25%, 1/1/44, Ser. C

    3,147,420   
  600     

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

    697,878   
  6,050     

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

    6,610,532   
  600     

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

    653,004   
  250     

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

    287,288   
 

State Public Finance Auth. Charter School Finance Corp. Rev., Ser. A,

 
  400     

5.875%, 12/1/36

    426,444   
  2,000     

Cosmos Foundation, 5.375%, 2/15/37

    2,048,320   
  4,000     

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

    4,792,280   
 

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

 
  6,500     

5.25%, 12/15/23, Ser. A

    7,022,600   
  6,500     

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

    7,778,160   
  1,000     

Uptown Dev. Auth., Tax Allocation, Infrastructure Improvement Facs., 5.50%, 9/1/29

    1,050,300   
  500     

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

    561,980   
   

 

 

 
      50,585,773   
   

 

 

 
  U. S. Virgin Islands – 0.1%  
  500     

Virgin Islands Public Finance Auth. Rev., 5.00%, 10/1/39, Ser. A-1

    507,400   
   

 

 

 
  Utah – 1.6%  
  7,000     

Salt Lake Cnty. Rev., IHC Health Services, 5.125%, 2/15/33 (AMBAC)

    8,024,450   
   

 

 

 
  Virginia – 0.6%  
  1,000     

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

    1,125,710   
  1,985     

Peninsula Town Center Community Dev. Auth. Rev., 6.45%, 9/1/37

    1,896,767   
   

 

 

 
      3,022,477   
   

 

 

 
  Washington – 1.2%  
 

Health Care Facs. Auth. Rev.,

 
  700     

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

    775,068   
  250     

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

    305,813   
  2,000     

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

    2,152,120   
 

State Housing Finance Commission Rev., Skyline at First Hill Project, Ser. A,

 
  275     

5.25%, 1/1/17

    265,185   
  3,600     

5.625%, 1/1/38

    2,839,032   
   

 

 

 
      6,337,218   
   

 

 

 
  West Virginia – 0.2%  
  1,000     

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

    1,143,770   
   

 

 

 
  Wisconsin – 0.1%  
  500     

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

    585,685   
   

 

 

 
 

Total Municipal Bonds & Notes (cost-$459,387,177)

    504,529,146   
   

 

 

 

 

4.30.12   PIMCO Municipal Income Funds Annual Report     13   


Table of Contents

PIMCO Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  

 

VARIABLE RATE NOTES (a)(d)(f)(g) – 2.2%

  

  Texas – 0.4%  
$ 1,000     

JPMorgan Chase Putters/Drivers Trust, GO, 9.326%, 2/1/17, Ser. 3480

  $ 1,252,410   
  600     

JPMorgan Chase Putters/Drivers Trust Rev., 9.937%, 10/1/31, Ser. 3227

    797,322   
   

 

 

 
      2,049,732   
   

 

 

 
  Washington – 1.8%  
  6,670     

JPMorgan Chase Putters/Drivers Trust, GO, 13.584%, 8/1/28, Ser. 3388

    9,402,833   
   

 

 

 
 

Total Variable Rate Notes (cost-$8,167,024)

    11,452,565   
   

 

 

 
  Total Investments (cost-$467,554,201) – 100.0%   $ 515,981,711   
   

 

 

 

 

14   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO California Municipal Income Fund Schedule of Investments

April 30, 2012

 

Principal
Amount
(000s)
         Value  

 

CALIFORNIA MUNICIPAL BONDS & NOTES – 91.8%

 
$ 10,000     

Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/34, Ser. F-1

  $ 10,962,200   
  5,000     

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

    5,803,200   
  650     

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

    699,023   
  720     

City & Cnty. of San Francisco Redev. Agcy., Special Tax, 6.125%, 8/1/31, Ser. B

    721,202   
  350     

Contra Costa Cnty. Public Financing Auth., Tax Allocation, 5.85%, 8/1/33, Ser. A

    347,441   
  5,000     

Desert Community College Dist., GO, 5.00%, 8/1/37, Ser. C (AGM)

    5,236,550   
  310     

Dublin Unified School Dist., GO, zero coupon, 8/1/23, Ser. E

    190,659   
  6,300     

Eastern Municipal Water Dist., CP, 5.00%, 7/1/35, Ser. H

    6,772,374   
 

Educational Facs. Auth. Rev. (h),

 
  10,200     

Claremont McKenna College, 5.00%, 1/1/39

    10,920,018   
  10,000     

Univ. of Southern California, 5.00%, 10/1/39, Ser. A

    11,066,100   
  2,975     

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

    3,085,491   
 

El Monte, Department of Public Social Services Fac., CP (AMBAC),

 
  10,790     

4.75%, 6/1/30

    10,790,216   
  14,425     

Phase II, 5.25%, 1/1/34

    14,427,741   
  1,000     

Folsom Redev. Agcy., Tax Allocation, 5.50%, 8/1/36

    1,022,490   
 

Fremont Community Facs. Dist. No. 1, Special Tax,

 
  165     

6.00%, 9/1/18

    166,105   
  505     

6.00%, 9/1/19

    508,232   
  3,500     

6.30%, 9/1/31

    3,513,265   
 

Golden State Tobacco Securitization Corp. Rev.,

 
  3,000     

5.00%, 6/1/35, Ser. A (FGIC)

    3,047,730   
  6,000     

5.00%, 6/1/38, Ser. A (FGIC)

    6,078,240   
  1,600     

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

    1,617,648   
  8,300     

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

    6,173,706   
  25,175     

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

    20,745,459   
 

Health Facs. Financing Auth. Rev.,

 
 

Adventist Health System, Ser. A,

 
  4,265     

5.00%, 3/1/33

    4,304,366   
  2,000     

5.75%, 9/1/39

    2,208,260   
 

Catholic Healthcare West, Ser. A,

 
  2,000     

6.00%, 7/1/34

    2,222,360   
  4,000     

6.00%, 7/1/39

    4,614,680   
  750     

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

    774,562   
  1,000     

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

    1,178,940   
  1,450     

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

    1,563,042   
  3,400     

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

    3,785,390   
 

Sutter Health,

 
  1,000     

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

    1,082,500   
  1,600     

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

    1,662,352   

 

4.30.12   PIMCO Municipal Income Funds Annual Report     15   


Table of Contents

PIMCO California Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
$ 2,800     

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

  $ 3,277,456   
  10,590     

Kern Cnty., Capital Improvements Projects, CP, 5.75%, 8/1/35, Ser. A (AGC)

    11,499,363   
  7,000     

La Quinta Redev. Agcy., Tax Allocation, 5.10%, 9/1/31 (AMBAC)

    7,019,950   
  500     

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

    554,100   
  500     

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

    500,305   
 

Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, Ser. A,

 
  1,000     

5.50%, 11/15/27

    1,121,620   
  3,900     

5.50%, 11/15/37

    4,367,259   
 

Los Angeles Department of Water & Power Rev. (h),

 
  5,000     

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

    5,294,400   
  3,000     

5.375%, 7/1/34, Ser. A

    3,380,850   
  7,000     

5.375%, 7/1/38, Ser. A

    7,861,910   
 

Los Angeles Unified School Dist., GO,

 
  10,000     

5.00%, 7/1/29, Ser. I (h)

    11,035,700   
  3,500     

5.00%, 1/1/34, Ser. I

    3,783,780   
  5,000     

5.00%, 1/1/34, Ser. I (h)

    5,405,400   
  250     

5.30%, 1/1/34, Ser. D

    274,950   
  700     

Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A

    744,072   
  1,900     

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

    2,336,544   
 

Municipal Finance Auth. Rev.,

 
  1,145     

Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B

    1,298,579   
  2,900     

Biola Univ., 5.875%, 10/1/34

    3,131,333   
  2,145     

Patterson Public Financing Auth. Rev.,
Waste Water System Financing Project, 5.50%, 6/1/39 (AGC)

    2,316,857   
  1,250     

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

    1,294,438   
 

Pollution Control Financing Auth. Rev.,

 
  1,250     

American Water Capital Corp. Project, 5.25%, 8/1/40 (a)(d)

    1,267,175   
  2,000     

San Jose Water Co. Projects, 5.10%, 6/1/40

    2,124,980   
  8,305     

Riverside Cnty., CP, 5.125%, 11/1/30 (NPFGC) (Pre-refunded @ $102, 5/1/12) (c)

    8,471,100   
 

San Diego Cnty. Water Auth., CP,

 
  350     

5.00%, 5/1/32, Ser. A (NPFGC)

    354,487   
  650     

5.00%, 5/1/32, Ser. A (NPFGC) (Pre-refunded @ $101, 5/1/12) (c)

    656,500   
  6,250     

5.00%, 5/1/38, Ser. 2008-A (AGM)

    6,659,000   
  3,285     

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

    3,624,998   
 

San Joaquin Hills Transportation Corridor Agcy. Rev., Ser. A,

 
  5,000     

5.50%, 1/15/28

    4,737,800   
  5,000     

5.70%, 1/15/19

    5,111,400   
  230     

San Jose, Special Assessment, 5.60%, 9/2/17, Ser. 24-Q

    237,880   
  1,500     

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

    1,670,580   
  1,200     

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

    1,301,556   

 

16   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO California Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal

Amount

(000s)

         Value  
$ 1,815     

Santa Clara, Central Park Library Project, CP, 5.00%, 2/1/32 (AMBAC)

  $ 1,834,076   
  3,500     

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

    3,792,110   
  1,300     

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

    1,538,797   
 

State, GO,

 
  5,885     

5.00%, 9/1/35

    6,250,988   
  100     

5.00%, 6/1/37

    105,114   
  3,000     

5.00%, 12/1/37

    3,156,210   
  2,400     

5.25%, 11/1/40

    2,628,720   
  1,500     

5.50%, 3/1/40

    1,663,680   
  2,000     

6.00%, 4/1/38

    2,312,480   
  2,000     

6.00%, 11/1/39

    2,340,040   
 

State Public Works Board Rev.,

 
  2,000     

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

    2,253,900   
  2,000     

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

    2,241,700   
  2,000     

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

    2,115,340   
  2,000     

Regents Univ., 5.00%, 4/1/34, Ser. E

    2,148,380   
 

Statewide Communities Dev. Auth. Rev.,

 
  1,000     

American Baptist Homes West, 6.25%, 10/1/39

    1,052,540   
  900     

California Baptist Univ., 5.50%, 11/1/38, Ser. A

    906,039   
  845     

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

    925,799   
  10,000     

Cottage Health, 5.00%, 11/1/40

    10,464,700   
  13,050     

Henry Mayo Newhall Memorial Hospital, 5.125%, 10/1/30, Ser. A (CA Mtg. Ins.)

    13,055,090   
  1,000     

Kaiser Permanente, 5.25%, 3/1/45, Ser. B

    1,050,420   
  1,000     

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

    1,102,350   
  3,000     

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

    3,047,460   
 

Methodist Hospital Project (FHA),

 
  2,100     

6.625%, 8/1/29

    2,623,278   
  7,700     

6.75%, 2/1/38

    9,376,675   
 

St. Joseph Health System,

 
  100     

5.125%, 7/1/24 (NPFGC)

    112,527   
  3,200     

5.75%, 7/1/47, Ser. A (FGIC)

    3,504,768   
 

Sutter Health,

 
  4,000     

5.50%, 8/15/34, Ser. B

    4,057,560   
  2,000     

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

    2,337,920   
  8,000     

The Internext Group, CP, 5.375%, 4/1/30

    8,002,800   
 

Univ. of California Irvine E. Campus,

 
  4,000     

5.125%, 5/15/31

    4,250,960   
  4,500     

5.375%, 5/15/38

    4,755,330   
  910     

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

    627,900   
  6,300     

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

    6,574,176   

 

4.30.12   PIMCO Municipal Income Funds Annual Report     17   


Table of Contents

PIMCO California Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal

Amount

(000s)

         Value  
$ 2,000     

Turlock, Emanuel Medical Center, CP, 5.50%, 10/15/37, Ser. B

  $ 2,022,420   
 

Univ. of California Rev.,

 
  8,000     

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

    8,298,000   
  2,000     

5.00%, 5/15/33, Ser. A (AMBAC)

    2,063,540   
  10,000     

5.00%, 5/15/36, Ser. A (AMBAC)

    10,284,400   
  1,000     

Westlake Village, CP, 5.00%, 6/1/39

    1,045,680   
   

 

 

 
 

Total California Municipal Bonds & Notes (cost-$357,181,123)

    395,931,731   
   

 

 

 
   

 

OTHER MUNICIPAL BONDS & NOTES – 5.9%

 
  Iowa – 1.8%  
  8,700     

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

    7,797,636   
   

 

 

 
  Louisiana – 0.1%  
  250     

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

    251,035   
   

 

 

 
  Ohio – 0.4%  
  2,250     

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

    1,756,418   
   

 

 

 
  Puerto Rico – 2.3%  
 

Sales Tax Financing Corp. Rev.,

 
  7,000     

5.00%, 8/1/46, Ser. C

    7,397,460   
  2,500     

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

    2,679,425   
   

 

 

 
      10,076,885   
   

 

 

 
  Texas – 1.3%  
  5,000     

Wood Cnty. Central Hospital Dist. Rev.,
East Texas Medical Center Quitman Project, 6.00%, 11/1/41

    5,389,950   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$25,692,914)

    25,271,924   
   

 

 

 
   

 

CALIFORNIA VARIABLE RATE NOTES (a)(d)(f)(g) – 2.3%

 
 

Health Facs. Financing Auth. Rev.,

 
  1,000     

9.25%, 11/15/36, Ser. 3193

    1,172,490   
  6,000     

11.33%, 11/15/42, Ser. 3255

    6,550,260   
  1,670     

Sacramento Cnty. Sanitation Dists. Financing Auth. Rev.,
13.549%, 8/1/13, Ser. 1034 (NPFGC)

    2,100,376   
   

 

 

 
 

Total California Variable Rate Notes (cost-$6,406,777)

    9,823,126   
   

 

 

 
  Total Investments (cost-$389,280,814) – 100.0%   $ 431,026,781   
   

 

 

 

 

18   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO New York Municipal Income Fund Schedule of Investments

April 30, 2012

 

Principal
Amount
(000s)
         Value  

 

NEW YORK MUNICIPAL BONDS & NOTES – 95.3%

 
$ 1,600     

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

  $ 1,509,968   
 

Hudson Yards Infrastructure Corp. Rev., Ser. A,

 
  2,000     

5.25%, 2/15/47

    2,168,080   
  4,000     

5.75%, 2/15/47

    4,529,720   
 

Liberty Dev. Corp. Rev.,

 
  2,000     

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

    2,193,420   
  5,000     

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

    5,658,150   
  1,500     

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

    1,676,025   
 

Goldman Sachs Headquarters,

 
  120     

5.25%, 10/1/35

    131,286   
  11,290     

5.25%, 10/1/35 (h)

    12,351,824   
  1,925     

5.50%, 10/1/37

    2,186,107   
 

Long Island Power Auth. Rev., Ser. A,

 
  750     

5.00%, 9/1/34 (AMBAC)

    779,160   
  4,500     

5.75%, 4/1/39

    5,110,695   
 

Metropolitan Transportation Auth. Rev.,

 
  6,650     

5.00%, 7/1/30, Ser. A (AMBAC)

    6,693,291   
  1,375     

5.125%, 1/1/29, Ser. A

    1,384,240   
  2,000     

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

    2,044,000   
  1,600     

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

    1,193,792   
  3,500     

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

    3,867,360   
 

New York City Industrial Dev. Agcy. Rev.,

 
  1,000     

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

    1,013,690   
  900     

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

    977,733   
  1,820     

Vaughn College Aeronautics, 5.25%, 12/1/36, Ser. B

    1,744,798   
  3,200     

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

    3,716,544   
  2,000     

New York City Municipal Water Finance Auth. Rev.,
Second Generation Resolutions, 5.00%, 6/15/32, Ser. HH

    2,264,060   
 

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

 
  2,500     

5.00%, 6/15/40, Ser. FF-2

    2,696,750   
  5,000     

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

    5,345,900   
  5,000     

New York City Transitional Finance Auth. Rev., 5.25%, 1/15/39, Ser. S-3

    5,449,700   
  2,000     

New York State Dormitory Auth. Rev., Mount Sinai Hospital, 5.00%, 7/1/31, Ser. A

    2,137,780   
  1,000     

Niagara Falls Public Water Auth. Water & Sewer Rev., 5.00%, 7/15/34, Ser. A (NPFGC)

    1,010,140   
  600     

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

    670,614   
 

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

 
  4,300     

5.00%, 9/1/38, Ser. 132

    4,444,867   
  1,000     

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

    1,130,030   
 

State Dormitory Auth. Rev.,

 
  500     

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

    547,985   

 

4.30.12   PIMCO Municipal Income Funds Annual Report     19   


Table of Contents

PIMCO New York Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
$ 1,000     

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

  $ 1,090,180   
  1,000     

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

    1,120,570   
  1,300     

Mount Sinai School of Medicine, 5.125%, 7/1/39

    1,387,711   
  4,500     

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

    4,865,805   
  1,225     

NYU Hospitals Center, 6.00%, 7/1/40, Ser. A

    1,385,892   
  1,000     

Pratt Institute, 5.125%, 7/1/39, Ser. C (AGC)

    1,075,850   
 

Sloan-Kettering Center Memorial,

 
  2,500     

4.50%, 7/1/35, Ser. A-1

    2,634,525   
  4,000     

5.00%, 7/1/34, Ser. 1 (Pre-refunded @ $100, 7/1/13) (c)

    4,219,640   
 

Teachers College,

 
  1,500     

5.00%, 7/1/32 (NPFGC)

    1,511,865   
  1,800     

5.50%, 3/1/39

    1,957,572   
  1,250     

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

    1,372,088   
  1,275     

Winthrop Univ. Hospital Assoc., 5.25%, 7/1/31, Ser. A (AMBAC)

    1,277,614   
  2,000     

State Environmental Facs. Corp. Rev.,
New York City Municipal Water Project, 5.125%, 6/15/31, Ser. D

    2,009,600   
  1,800     

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

    1,977,300   
  3,000     

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

    3,407,280   
  3,000     

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

    3,219,300   
  5,860     

Troy Industrial Dev. Auth. Rev.,
Rensselaer Polytechnic Institute Project, 4.625%, 9/1/26

    6,473,835   
  1,455     

TSACS, Inc. Rev., 5.125%, 6/1/42, Ser. 1

    1,070,182   
  2,945     

Warren & Washington Cntys. Industrial Dev. Agcy. Rev.,
Glens Falls Hospital Project, 5.00%, 12/1/27, Ser. C (AGM)

    2,985,464   
  910     

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

    1,045,981   
  200     

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

    203,302   
  400     

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

    436,008   
   

 

 

 
 

Total New York Municipal Bonds & Notes (cost-$124,508,621)

    133,355,273   
   

 

 

 
   

 

OTHER MUNICIPAL BONDS & NOTES – 4.7%

 
  Louisiana – 0.5%  
  750     

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

    753,105   
   

 

 

 
  Ohio – 1.1%  
  2,000     

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

    1,561,260   
   

 

 

 
  Puerto Rico – 2.7%  
  1,000     

Aqueduct & Sewer Auth. Rev., 6.00%, 7/1/44, Ser. A

    1,055,640   
 

Sales Tax Financing Corp. Rev.,

 
  1,000     

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

    1,071,770   
  1,500     

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

    1,662,585   
   

 

 

 
      3,789,995   
   

 

 

 

 

20   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO New York Municipal Income Fund Schedule of Investments

April 30, 2012 (continued)

 

Principal
Amount
(000s)
         Value  
  U. S. Virgin Islands – 0.4%  
$ 500     

Virgin Islands Public Finance Auth. Rev., 5.00%, 10/1/39, Ser. A-1

  $ 507,400   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost – $5,991,422)

    6,611,760   
   

 

 

 
  Total Investments (cost-$130,500,043) – 100.0%   $ 139,967,033   
   

 

 

 

 

 

 

Notes to Schedules of Investments:

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $11,924,915 and $11,090,301, representing 2.3% and 2.6% of total investments in Municipal and California Municipal, respectively.  
(b)   Illiquid.  
(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  
(d)   144A – Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  
(e)   In default.  
(f)   Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on April 30, 2012.  
(g)   Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on April 30, 2012.  
(h)   Residual Interest Bonds held in Trust – Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which each Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  
(i)   Restricted. The aggregate acquisition cost of such security is $935,300 in Municipal. The aggregate market value is $472,350, representing 0.1% of total investments in Municipal.  

 

 

Glossary:

 

ACA     -      insured by American Capital Access Holding Ltd.
AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
CA Mtg. Ins.     -      insured by California Mortgage Insurance
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
GO     -      General Obligation Bond
IBC     -      Insurance Bond Certificate
NPFGC     -      insured by National Public Finance Guarantee Corp.
TCRS     -      Temporary Custodian Receipts

 

See accompanying Notes to Financial Statements   4.30.12   PIMCO Municipal Income Funds Annual Report     21   


Table of Contents

PIMCO Municipal Income Funds Statements of Assets and Liabilities

April 30, 2012

 

 
        Municipal         California
Municipal
        New York
Municipal
 
     

Assets:

                 

Investments, at value (cost-$467,554,201, $389,280,814 and $130,500,043, respectively)

      $515,981,711          $431,026,781          $139,967,033   

Cash

      9,661,558          2,080,960          1,596,086   

Interest receivable

      8,960,637          7,249,411          1,952,028   

Deposits with brokers for futures contracts collateral

      140,000          112,000          28,000   

Prepaid expenses and other assets

      77,934          1,111,689          1,666,044   

Total Assets

      534,821,840          441,580,841          145,209,191   
     
Liabilities:                  

Payable for Floating Rate Notes issued

      15,563,277          35,765,500          10,476,876   

Dividends payable to common and preferred shareholders

      2,062,258          1,428,701          439,493   

Investment management fees payable

      252,440          197,118          65,603   

Interest payable

      33,739          88,759          20,972   

Payable for variation margin on futures contracts

      7,813          6,250          1,563   

Accrued expenses and other liabilities

      161,559          224,269          78,930   

Total Liabilities

      18,081,086          37,710,597          11,083,437   

Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 7,600, 6,000 and 1,880 shares issued and outstanding, respectively)

      190,000,000          150,000,000          47,000,000   

Net Assets Applicable to Common Shareholders

      $326,740,754          $253,870,244          $87,125,754   
     

Composition of Net Assets Applicable to Common Shareholders:

                 

Common Shares (no par value):

                 

Paid-in-capital

      $343,881,851          $250,081,673          $101,786,800   

Undistributed net investment income

      5,599,470          9,754,846          2,307,100   

Accumulated net realized loss

      (70,992,827)          (47,404,684)          (26,353,103)   

Net unrealized appreciation of investments and futures contracts

      48,252,260          41,438,409          9,384,957   

Net Assets Applicable to Common Shareholders

      $326,740,754          $253,870,244          $87,125,754   

Common Shares Issued and Outstanding

      25,265,935          18,466,278          7,658,671   

Net Asset Value Per Common Share

      $12.93          $13.75          $11.38   

 

22   PIMCO Municipal Income Funds Annual Report   4.30.12   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds Statements of Operations

Year ended April 30, 2012

 

 
        Municipal         California
Municipal
        New York
Municipal
 
     

Investment Income:

                 

Interest

      $29,164,612          $23,195,029          $6,841,369   
     
Expenses:                  

Investment management fees

      3,188,353          2,484,018          836,679   

Auction agent fees and commissions

      318,280          245,675          78,200   

Interest expense

      187,367          268,555          54,586   

Custodian and accounting agent fees

      102,331          106,427          54,827   

Audit and tax services

      68,761          62,018          43,001   

Shareholder communications

      56,090          36,699          18,298   

Trustees’ fees and expenses

      44,534          37,672          13,533   

Transfer agent fees

      37,156          36,719          35,079   

New York Stock Exchange listing fees

      17,572          17,493          20,629   

Insurance expense

      12,600          9,017          3,567   

Legal fees

      9,675          7,740          5,805   

Miscellaneous

      15,444          14,042          12,399   

Total Expenses

      4,058,163          3,326,075          1,176,603   

Less: investment management fees waived

      (206,138)          (160,580)          (53,945)   

custody credits earned on cash balances

      (1,328)          (1,015)          (611)   

Net Expenses

      3,850,697          3,164,480          1,122,047   
     

Net Investment Income

      25,313,915          20,030,549          5,719,322   
     
Realized and Change in Unrealized Gain (Loss):                  

Net realized gain (loss) on:

                 

Investments

      780,662          70,450          1,419,991   

Futures contracts

      267,808          207,688          71,051   

Swaps

      (4,431,799)          (11,472,377)          (2,372,276)   

Net change in unrealized appreciation/depreciation of:

                 

Investments

      58,092,323          51,245,407          11,319,175   

Futures contracts

      (351,605)          (281,284)          (70,321)   

Swaps

      911,084          2,315,148          372,095   

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

      55,268,473          42,085,032          10,739,715   

Net Increase in Net Assets Resulting from Investment Operations

      80,582,388          62,115,581          16,459,037   

Dividends on Preferred Shares from Net Investment Income

      (438,548)          (347,737)          (107,654)   

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

      $80,143,840          $61,767,844          $16,351,383   

 

See accompanying Notes to Financial Statements   4.30.12   PIMCO Municipal Income Funds Semi-Annual Report     23   


Table of Contents

PIMCO Municipal Income Funds Statements of Changes in Net Assets

Applicable to Common Shareholders

 

 
        Municipal  
        Year ended
April 30, 2012
        Year ended
April 30, 2011
 

Investment Operations:

           

Net investment income

      $25,313,915          $26,927,704   

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

      (3,383,329)          (2,212,708)   

Net change in unrealized appreciation/depreciation of investments, futures contracts and swaps

      58,651,802          (25,572,174)   

Net increase (decrease) in net assets resulting from investment operations

      80,582,388          (857,178)   

Dividends on Preferred Shares from Net Investment Income

      (438,548)          (805,715)   

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

      80,143,840          (1,662,893)   

Dividends to Common Shareholders from Net Investment Income

      (24,597,218)          (24,482,358)   
   
Common Share Transactions:            

Reinvestment of dividends

      1,278,223          1,604,452   

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

      56,824,845          (24,540,799)   
   
Net Assets Applicable to Common Shareholders:            

Beginning of year

      269,915,909          294,456,708   

End of year (including undistributed net investment income of $5,599,470 and $5,154,164; $9,754,846 and $7,054,241; $2,307,100 and $1,845,161; respectively)

      $326,740,754          $269,915,909   
   

Common Shares Issued in Reinvestment of Dividends

      98,255          123,701   

 

24   PIMCO Municipal Income Funds Semi-Annual Report   10.31.11   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds Statements of Changes in Net Assets

Applicable to Common Shareholders (continued)

 

   
California Municipal         New York Municipal  

Year ended

April 30, 2012

     

Year ended

April 30, 2011

       

Year ended

April 30, 2012

       

Year ended

April 30, 2011

 
                   
$20,030,549       $20,708,483          $5,719,322          $6,116,196   
(11,194,239)       (2,535,504)          (881,234)          617,536   

53,279,271

      (28,431,908)          11,620,949          (7,055,963)   
62,115,581       (10,258,929)          16,459,037          (322,231)   
(347,737)       (638,444)          (107,654)          (202,506)   

61,767,844

      (10,897,373)          16,351,383          (524,737)   
(17,034,147)       (16,948,939)          (5,232,071)          (5,210,008)   
       
                   
989,256       1,201,620          278,520          388,870   
45,722,953       (26,644,692)          11,397,832          (5,345,875)   
       
                   
208,147,291       234,791,983          75,727,922          81,073,797   

$253,870,244

      $208,147,291          $87,125,754          $75,727,922   
       
79,651       96,054          26,484          36,764   

 

See accompanying Notes to Financial Statements   10.31.11   PIMCO Municipal Income Funds Semi-Annual Report     25   


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies

 

PIMCO Municipal Income Fund (‘‘Municipal’’), PIMCO California Municipal Income Fund (‘‘California Municipal’’) and PIMCO New York Municipal Income Fund (‘‘New York Municipal’’), each a “Fund” and collectively referred to as the ‘‘Funds’’ or ‘‘PIMCO Municipal Income Funds’’, were organized as Massachusetts business trusts on May 10, 2001. Prior to commencing operations on June 29, 2001, 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 Funds’ investment manager and is an indirect, wholly-owned subsidiary of Allianz Asset Management of America L.P. (“AAM”), formerly Allianz Global Investors of America L.P. prior to December 31, 2011. AAM 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 no par value per share of common shares authorized.

 

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

 

The preparation of the 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 for interim or annual periods beginning on or after December 15, 2011. The Funds’ management is evaluating the implications of this change.

 

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

 

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

 

(a) Valuation of Investments

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services.

 

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

 

26   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies (continued)

 

by the Board of Trustees. 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. Exchange-traded futures are valued at the price determined by the relevant exchange. Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.

 

The prices used by the Funds to value securities may differ from the value that would be realized if the securities were sold and these differences could be material to the Funds’ financial statements. Each 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 techniques used.

 

The valuation techniques used by the Funds to measure fair value during the year ended April 30, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.

 

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

 

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

 

4.30.12   PIMCO Municipal Income Funds Annual Report     27   


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies (continued)

 

 

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

 

A summary of the inputs used at April 30, 2012 in valuing each Fund’s assets and liabilities is listed below (refer to the Schedules of Investments and Note 5(a) for more detailed information on Investments in Securities and Other Financial Instruments):

 

Municipal:

                       
    

Level 1 –

Quoted Prices

   

Level 2 –

Other Significant

Observable

Inputs

   

Level 3 –

Significant

Unobservable

Inputs

   

Value at

4/30/12

 
Investments in Securities – Assets        

Municipal Bonds & Notes:

       

Alaska

         $ 3,838,125      $ 482,850      $ 4,320,975   

Tennessee

           11,177,488        472,350        11,649,838   

All Other

           488,558,333               488,558,333   

Variable Rate Notes

           11,452,565               11,452,565   
Total Investments in Securities – Assets          $ 515,026,511      $ 955,200      $ 515,981,711   
Other Financial Instruments* – Liabilities   

Interest Rate Contracts

  $ (351,605                 $ (351,605
Total Investments   $ (351,605   $ 515,026,511      $ 955,200      $ 515,630,106   

California Municipal:

                       
     Level 1 –
Quoted Prices
   

Level 2 –

Other Significant

Observable

Inputs

   

Level 3 –

Significant

Unobservable

Inputs

   

Value at

4/30/12

 
Investments in Securities – Assets        

California Municipal Bonds & Notes:

         $ 395,303,831      $ 627,900      $ 395,931,731   

Other Municipal Bonds & Notes

           25,271,924               25,271,924   

California Variable Rate Notes

           9,823,126               9,823,126   
Total Investments in Securities – Assets          $ 430,398,881      $ 627,900      $ 431,026,781   
Other Financial Instruments* – Liabilities   

Interest Rate Contracts

  $ (281,284                 $ (281,284
Total Investments   $ (281,284   $ 430,398,881      $ 627,900      $ 430,745,497   

New York Municipal:

                       
    

Level 1 –

Quoted Prices

   

Level 2 –

Other Significant

Observable

Inputs

   

Level 3 –

Significant

Unobservable

Inputs

   

Value at

4/30/12

 
Investments in Securities – Assets        

New York Municipal Bonds & Notes

         $ 133,355,273             $ 133,355,273   

Other Municipal Bonds & Notes

           6,611,760               6,611,760   
Total Investments in Securities – Assets          $ 139,967,033             $ 139,967,033   
Other Financial Instruments* – Liabilities   

Interest Rate Contracts

  $ (70,321                 $ (70,321
Total Investments   $ (70,321   $ 139,967,033             $ 139,896,712   

 

*   Other financial instruments are futures contracts not reflected in the Schedules of Investments which are valued at the unrealized appreciation (depreciation) of the instrument.  

 

28   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies (continued)

 

 

There were no significant transfers between Levels 1 and 2 during the year ended April 30, 2012.

 

A rollforward of fair value measurements using significant unobservable inputs (Level 3) for the year ended April 30, 2012, was as follows:

 

Municipal:

                                                     
    

Beginning

Balance

4/30/11

    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

4/30/12

 
Investments in Securities – Assets               

Municipal Bonds & Notes:

                 

Alaska

                                            $ 482,850             $ 482,850   

Tennessee

  $ 472,350                                                         472,350   
Total Investments   $ 472,350                                         $ 482,850             $ 955,200   

California Municipal:

                                                     
    

Beginning

Balance

4/30/11

    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

4/30/12

 
Investments in Securities – Assets               

California Municipal Bonds & Notes

                                            $ 627,900             $ 627,900   
Total Investments                                             $ 627,900             $ 627,900   

 

**   Transferred out of Level 2 into Level 3 because sufficient observable inputs were not available.  

 

The net change in unrealized depreciation of Level 3 investments which Municipal and California Municipal held at April 30, 2012, was $(12,150) and $(16,735), respectively. Net change in unrealized depreciation is reflected on the Statements of Operations.

 

(c) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on an identified cost basis. Interest income adjusted for the accretion of discount and amortization of premium is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income 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 April 30, 2012. The Funds' federal tax returns for the prior three years remain subject to examination by the Internal Revenue Service.

 

(e) Dividends and Distributions — Common Shares

The Funds declare dividends from net investment income 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

 

4.30.12   PIMCO Municipal Income Funds Annual Report     29   


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies (continued)

 

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 distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as taxable overdistributions and/or return of capital.

 

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

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

 

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

 

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

 

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

 

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

 

(g) Restricted Securities

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

 

30   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

1. Organization and Significant Accounting Policies (continued)

 

 

(h) 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 fees. 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.

 

(i) 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, credit and leverage risks.

 

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

 

Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When 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 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.

 

 

4.30.12   PIMCO Municipal Income Funds Annual Report     31   


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

2. Principal Risks (continued)

 

The Funds are exposed to risks associated with leverage. Leverage causes 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 and over-the-counter derivatives 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) Futures Contracts

The Funds use futures contracts to manage their exposure to movements in interest rates. A futures contract is an agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract, the Funds are required to pledge to the broker an amount of cash or securities equal to the minimum “initial margin” requirements of the exchange. Pursuant to the contracts, the Funds agree to receive from or pay to the broker an amount of cash or securities equal to the daily fluctuation in the value of the contracts. Such receipts or payments are known as “variation margin” and are recorded by the Funds as unrealized appreciation or depreciation. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the value of the contracts at the time they were opened and the value at the time they were closed. Any unrealized appreciation or depreciation recorded is simultaneously reversed. The use of futures transactions involves various risks, including the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates, and possibly inability or unwillingness of counterparties to meet the terms of their contracts.

 

(b) 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 may be identified as collateral 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 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

 

32   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

3. Financial Derivative Instruments (continued)

 

Operations. Net periodic payments received or paid by the Funds 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 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.

 

At April 30, 2012 there were no interest rate swaps agreements held by the Funds.

 

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 Assets and Liabilities at April 30, 2012:

 

Municipal:

     
Location  

Interest Rate

Contracts

 

Liability derivatives:

 

Payable for variation margin on futures contracts*

  $ (7,813
 

 

 

 

California Municipal:

     
Location  

Interest Rate

Contracts

 

Liability derivatives:

 

Payable for variation margin on futures contracts*

  $ (6,250
 

 

 

 

New York Municipal:

     
Location   Interest Rate
Contracts
 

Liability derivatives:

 

Payable for variation margin on futures contracts*

  $ (1,563
 

 

 

 

 

*   Included in the net unrealized depreciation of $351,605, $281,284 and $70,321 on futures contracts, for Municipal, California Municipal and New York Municipal as reported in section 5(a) of the Notes to Financial Statements.  

 

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Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

3. Financial Derivative Instruments (continued)

 

 

The effect of derivatives on the Statements of Operations for the year ended April 30, 2012:

 

Municipal:

     
Location  

Interest Rate

Contracts

 

Net realized gain (loss) on:

 

Futures contracts

  $ 267,808   

Swaps

    (4,431,799
 

 

 

 

Total net realized gain (loss)

  $ (4,163,991
 

 

 

 

Net change in unrealized appreciation/depreciation of:

 

Futures contracts

  $ (351,605

Swaps

    911,084   
 

 

 

 

Total net change in unrealized appreciation/depreciation

  $ 559,479   
 

 

 

 

California Municipal:

     
Location  

Interest Rate

Contracts

 

Net realized gain (loss) on:

 

Futures contracts

  $ 207,688   

Swaps

    (11,472,377
 

 

 

 

Total net realized gain (loss)

  $ (11,264,689
 

 

 

 

Net change in unrealized appreciation/depreciation of:

 

Futures contracts

  $ (281,284

Swaps

    2,315,148   
 

 

 

 

Total net change in unrealized appreciation/depreciation

  $ 2,033,864   
 

 

 

 

New York Municipal:

     
Location  

Interest Rate

Contracts

 

Net realized gain (loss) on:

 

Futures contracts

  $ 71,051   

Swaps

    (2,372,276
 

 

 

 

Total net realized gain (loss)

  $ (2,301,225
 

 

 

 

Net change in unrealized appreciation/depreciation of:

 

Futures contracts

  $ (70,321

Swaps

    372,095   
 

 

 

 

Total net change in unrealized appreciation/depreciation

  $ 301,774   
 

 

 

 

 

The average volume of derivative activity (measured at each fiscal quarter-end) during the year ended April 30, 2012:

 

    

Futures

Contracts

Short(1)

   

Interest Rate

Swap

Agreements(2)

 

Municipal

    (10   $ 6,160   

California Municipal

    (8     15,120   

New York Municipal

    (2     3,120   

 

(1)   

Number of contracts

 
(2)   

Notional amount (in thousands)

 

 

34   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

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 fee 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 were outstanding, for the period from July 1, 2011 through June 30, 2012. For the year ended April 30, 2012, each Fund paid investment management fees at an effective rate of 0.61% 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

For the year ended April 30, 2012, purchases and sales of investments, other than short-term securities and U.S. government obligations, were as follows:

 

     Purchases     Sales  

Municipal

  $ 88,562,052      $ 116,751,034   

California Municipal

    36,694,871        45,313,240   

New York Municipal

    28,671,674        32,492,008   

 

(a) Futures contracts outstanding at April 30, 2012:

 

Municipal:

                         
     Type   Contracts  

Market

Value

(000s)

   

Expiration

Date

   

Unrealized

Depreciation

 

Short:

  30-Year U.S. Treasury Bond Futures   (50)   $ (7,144     6/20/12      $ (351,605
         

 

 

 

California Municipal:

 
     Type   Contracts  

Market

Value

(000s)

   

Expiration

Date

   

Unrealized

Depreciation

 

Short:

  30-Year U.S. Treasury Bond Futures   (40)   $ (5,715     6/20/12      $ (281,284
         

 

 

 

New York Municipal:

 
     Type   Contracts   Market
Value
(000s)
    Expiration
Date
    Unrealized
Depreciation
 

Short:

  30-Year U.S. Treasury Bond Futures   (10)   $ (1,429     6/20/12      $ (70,321
         

 

 

 

 

At April 30, 2012 Municipal, California Municipal and New York Municipal pledged $140,000, $112,000 and $28,000, respectively, in cash as collateral for futures contracts.

 

(b) Floating rate notes:

 

The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2012 for Municipal, California Municipal and New York Municipal was $20,681,270, $35,887,768 and $10,476,876 at a weighted average interest rate, including fees, of 0.91%, 0.75% and 0.52%, respectively.

 

 

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Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

6. Income Tax Information

 

For the year ended April 30, 2012, the tax character of dividends paid by the Funds were as follows:

 

    

Ordinary

Income

Distributions

   

Tax

Exempt

Income

 

Municipal

  $ 445,895      $ 24,589,871   

California Municipal

    243,630        17,138,254   

New York Municipal

    27,309        5,312,416   

 

For the year ended April 30, 2011, the tax character of dividends paid by the Funds were as follows:

 

    

Ordinary

Income

   

Tax

Exempt

Income

 

Municipal

  $ 2,345,022      $ 22,943,051   

California Municipal

    1,445,397        16,141,986   

New York Municipal

    464,408        4,948,106   

 

At April 30, 2012, the components of distributable earnings were as follows:

 

   

Tax

Exempt

Income

   

Capital Loss

Carryforwards(1)

        Post – October Capital Loss(2)    
         Short-Term     Long-Term  

Municipal

  $ 5,599,470      $ 71,685,709                 

California Municipal

    9,754,846        45,012,856             $ 1,800,462   

New York Municipal

    2,307,100        26,376,958                 

 

(1)   Capital loss carryforwards available as a reduction, to the extent provided in the regulations, of any future net realized gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be disbursed.  
(2)   Capital losses realized during the period November 1, 2011 through April 30, 2012 which the Funds elected to defer to the following taxable year pursuant to income tax regulations.  

 

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), 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 in those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this, 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.

 

At April 30, 2012, the Funds had capital loss carryforward amounts as follows:

 

                                              No Expiration(3)  
     2013     2014     2015     2016     2017     2018     2019     Short-Term     Long-Term  

Municipal

  $ 12,156,912      $ 1,105,730      $ 459,581      $ 3,577,024      $ 890,721      $ 49,231,992             $ 3,906,753      $ 356,996   

California Municipal

    6,552,094        1,951,329                             23,866,648               11,848,293        794,492   

New York Municipal

    4,622,781        243,785                      3,099,084        16,947,180               1,464,128          

 

(3)   Carryforward amounts are subject to the provisions of the Act.  

 

36   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

6. Income Tax Information (continued)

 

 

For the year ended April 30, 2012, the Funds had capital loss carryforwards which were utilized and/or expired as follows:

 

     Expired  

Municipal

  $ 1,890,888   

California Municipal

    4,391,323   

New York Municipal

    2,679,047   

 

For the year ended April 30, 2012, permanent “book-tax” adjustments were as follows:

 

    

Undistributed Net

Investment

Income

   

Accumulated

Net Realized

Loss

   

Paid-In

Capital In

Excess

of Par

 

Municipal (a)(b)

  $ 167,157      $ 1,723,731      $ (1,890,888

California Municipal (a)(b)

    51,940        4,339,383        (4,391,323

New York Municipal (a)(b)

    82,342        2,596,705        (2,679,047

 

These permanent “book-tax” differences were primarily attributable to:

 

(a)   Differing treatment of Inverse Floaters  
(b)   Expiring Capital Loss Carryforwards  

 

Net investment income, net realized gains or losses and net assets were not affected by these adjustments.

 

The cost basis of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at April 30, 2012 were:

 

    

Cost of

Investments

   

Gross

Unrealized

Appreciation

   

Gross

Unrealized

Depreciation

   

Net

Unrealized

Appreciation

 

Municipal

  $ 451,503,067      $ 55,866,181      $ 6,921,037      $ 48,945,144   

California Municipal

    355,383,596        42,133,418        1,286,372        40,847,046   

New York Municipal

    121,699,543        10,100,748        691,939        9,408,809   

 

Differences between book and tax cost basis were primarily attributable to Inverse Floater transactions.

 

7. Auction-Rate Preferred Shares

Municipal has 1,520 shares of Preferred Shares Series A, 1,520 shares of Preferred Shares Series B, 1,520 shares of Preferred Shares Series C, 1,520 shares of Preferred Shares Series D and 1,520 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 has 2,000 shares of Preferred Shares Series A, 2,000 shares of Preferred Shares Series B and 2,000 shares of Preferred Shares Series C outstanding, each with a liquidation preference value of $25,000 per share plus any accumulated, unpaid dividends.

 

New York Municipal has 1,880 shares of Preferred Shares Series A outstanding, 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 procedures in the event of auction failure). Distributions of net realized capital gains, if any, are paid annually.

 

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Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

7. Auction-Rate Preferred Shares (continued)

 

 

For the year ended April 30, 2012, the annualized dividend rates for each Fund ranged from:

 

     High     Low    

At

April 30, 2012

 

Municipal:

                 

Series A

    0.396     0.107     0.381

Series B

    0.411     0.107     0.381

Series C

    0.411     0.107     0.381

Series D

    0.411     0.107     0.381

Series E

    0.411     0.107     0.381

California Municipal:

                 

Series A

    0.396     0.107     0.381

Series B

    0.411     0.107     0.381

Series C

    0.411     0.107     0.381

New York Municipal:

                 

Series A

    0.411     0.107     0.381

 

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 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.

 

8. Subsequent Events

 

On May 1, 2012, the following dividends were declared to common shareholders payable June 1, 2012 to shareholders of record on May 11, 2012:

 

Municipal

     $0.08125 per common share

California Municipal

     $0.077 per common share

New York Municipal

     $0.057 per common share

 

38   PIMCO Municipal Income Funds Annual Report   4.30.12


Table of Contents

PIMCO Municipal Income Funds Notes to Financial Statements

April 30, 2012

 

8. Subsequent Events (continued)

 

 

On June 1, 2012, the following dividends were declared to common shareholders payable July 2, 2012 to shareholders of record on June 11, 2012:

 

Municipal

     $0.08125 per common share

California Municipal

     $0.077 per common share

New York Municipal

     $0.057 per common share

 

There were no other events that require recognition or disclosure. In preparing these financial statements, Funds management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

4.30.12   PIMCO Municipal Income Funds Annual Report     39   


Table of Contents

PIMCO Municipal Income Fund Financial Highlights

For a common share outstanding throughout each year:

 

             Year ended April 30,  
        2012         2011         2010         2009         2008  

Net asset value, beginning of year

      $10.72          $11.76          $9.38          $12.96          $14.85   
         

Investment Operations:

                             

Net investment income

      1.01          1.07          1.18          1.13          1.12   

Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps

      2.20          (1.10       2.22          (3.53       (1.74

Total from investment operations

      3.21          (0.03       3.40          (2.40       (0.62
         

Dividends on Preferred Shares from Net Investment Income

      (0.02       (0.03       (0.04       (0.20       (0.29

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

      3.19          (0.06       3.36          (2.60       (0.91
         

Dividends to Common Shareholders from Net Investment Income

      (0.98       (0.98       (0.98       (0.98       (0.98

Net asset value, end of year

      $12.93          $10.72          $11.76          $9.38          $12.96   

Market price, end of year

      $15.28          $12.92          $13.72          $11.40          $16.46   

Total Investment Return (1)

      27.20       1.54       30.34       (24.58 )%        (2.47 )% 

RATIOS/SUPPLEMENTAL DATA:

                             

Net assets applicable to common shareholders, end of year (000s)

      $326,741          $269,916          $294,457          $233,507          $321,268   

Ratio of expenses to average net assets, including interest
expense (2)(3)(4)

      1.28 %(5)        1.44       1.46 %(5)        1.64 %(5)        1.51 %(5) 

Ratio of expenses to average net assets, excluding interest expense (2)(3)

      1.22 %(5)        1.34       1.34 %(5)        1.42 %(5)        1.20 %(5) 

Ratio of net investment income to average net assets (2)

      8.42 %(5)        9.43       10.77 %(5)        10.65 %(5)        8.07 %(5) 

Preferred shares asset coverage per share

      $67,