PIMCO California Municipal Income Fund

 

 

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, 2013

Date of reporting period: April 30, 2013

 

 

 


Item 1. REPORT TO SHAREHOLDERS

 

PIMCO Municipal Income Fund

PIMCO California Municipal Income Fund

PIMCO New York Municipal Income Fund

 

Annual Report

April 30, 2013

 

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Contents

 

 

  2-3      Letter to Shareholders
  4      Fund Insights
  5-6      Performance & Statistics
  7-26      Schedules of Investments
  27      Statements of Assets and Liabilities
  28      Statements of Operations
  30-31      Statements of Changes in Net Assets
  32-43      Notes to Financial Statements
  44-46      Financial Highlights
  47      Report of Independent Registered Public Accounting Firm
  48-49      Tax Information/Annual Shareholder Meeting Results
  50-51      Privacy Policy/Proxy Voting Policies & Procedures
  52-53      Dividend Reinvestment Plan
  54-55      Board of Trustees
  56      Fund Officers


Letter from the Chairman

and President & CEO

 

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Hans W. Kertess

Chairman of the Board of Trustees

 

LOGO

Brian S. Shlissel

President & Chief Executive Officer

 

Dear Shareholder:

Despite periodic setbacks, the municipal bond market generated solid results during the fiscal 12-month reporting period ended April 30, 2013. In particular, longer-term, lower credit municipals were particularly favorable during the period as investors were drawn to higher yielding securities.

For the fiscal 12-month period ended April 30, 2013:

 

n   PIMCO Municipal Income Fund advanced 14.26% on net asset value (“NAV”) and 11.96% on market price.

 

n   PIMCO California Municipal Income Fund rose 14.11% on NAV and 9.96% on market price.

 

n   PIMCO New York Municipal Income Fund increased 12.07% on NAV and 12.96% on market price.

Twelve Months in Review

The US economy continued to grow during the fiscal 12-month reporting period; however, the pace of the expansion was far from robust. Gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of US economic activity and the principal indicator of economic performance, grew at an annual pace of 1.3% during the second quarter of 2012. GDP growth accelerated to a 3.1% annual pace during the third quarter, before decelerating to a 0.4% annual pace during the fourth quarter of the 2012. GDP growth rebounded to a 2.5% annual rate (preliminary estimate) during the first quarter of 2013.

The Federal Reserve (the “Fed”) initiated a number of actions to support the economy and reduce unemployment. In September 2012, the Fed introduced a

third round of “quantitative easing” which entailed the purchase of $40 billion of mortgage securities each month. As 2012 drew to a close, the Fed revealed that it would continue purchasing $40 billion of mortgage securities each month in addition to purchasing $45 billion per month of longer-term Treasuries on an open-ended basis. At its meeting in December, the Fed said that it expected to keep the Fed Funds rate in the 0.0% to 0.25% range “…as long as the unemployment rate remains above 6.5%.”

Yields on US Treasury bonds trended lower during the 12-months ended April 30, 2013. The benchmark ten-year Treasury bond commenced the fiscal period yielding 1.95% and ended the period at 1.70%. In July 2012, the yield on the benchmark 10-year Treasury bond fell to 1.43%, a record low. This downward trend reflected a variety of concerns, including Europe’s ongoing sovereign debt crisis, uncertainties regarding fiscal policy and decelerating global economic growth.

Overall, the municipal bond market was aided by solid demand and attractive yields. With the economy continuing to expand, tax revenues increased, supporting many municipalities and helping to improve their fiscal situations. In addition, many municipalities took actions to reduce expenditures and address pension funding issues.

 

2   April 30, 2013  |   Annual Report


Outlook

Recent US economic data, in general, has been weaker than anticipated, leading to concerns of another spring/summer slowdown. At the conclusion of its meeting in March 2013, the Fed stated that it was seeing “a return to moderate economic growth following a pause late last year.” However, the Fed also acknowledged that “fiscal policy is restraining economic growth.” Whether the economy is currently experiencing a temporary “soft patch” or larger setback

 

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remains to be seen. Given this uncertainty and continued high unemployment, we expect the Fed will maintain an accommodative monetary stance.

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, us.allianzgi.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   LOGO
Hans W. Kertess   Brian S. Shlissel
Chairman of the Board of Trustees   President & Chief Executive Officer

 

Annual Report  |   April 30, 2013     3   


Fund Insights

PIMCO Municipal Income Fund

PIMCO California Municipal Income Fund

PIMCO New York Municipal Income Fund

 

For the fiscal 12-months ended April 30, 2013, PIMCO Municipal Income Fund returned 14.26% on net asset value (“NAV”) and 11.96% on market price.

For the fiscal 12-months ended April 30, 2013, PIMCO California Municipal Income Fund returned 14.11% on NAV and 9.96% on market price.

For the fiscal 12-months ended April 30, 2013, PIMCO New York Municipal Income Fund returned 12.07% on NAV and 12.96% on market price.

The municipal bond market generated solid results during the fiscal 12-month reporting period ended April 30, 2013. The overall municipal market, as measured by the Barclays Municipal Bond Index (the “Index”), posted positive returns during six of the first seven months of the period. During this time, many states benefited from positive year-over-year tax receipts, and new money and issue supply was not sufficient to meet robust investor demand. The Index then declined in December 2012, as investor sentiment weakened given uncertainties related to the “fiscal cliff” and the future tax-favored status of municipal bonds. The Index again rallied in January and February 2013, as municipal bonds maintained their tax-exempt status and solid demand resumed. However, there was another sell-off in March, as new supply increased sharply, demand waned and Treasury yields moved higher. The period ended on a positive note, as solid investor demand returned and the market rallied in April. All told, during the 12-month

period, the Index returned 5.19%. In comparison, the overall taxable fixed income market, as measured by the Barclays US Aggregate Bond Index, gained 3.68% during the same period.

A longer duration than the Index for the majority of the reporting period contributed to the performance of New York Municipal and California Municipal, as municipal yields declined during the 12-month reporting period. Conversely, Municipal’s shorter duration than the Index detracted from performance.

Each fund benefited from an overweighting to revenue-backed municipal bonds and the Tobacco sector given their outperformance versus the Index. Municipal and New York Municipal were rewarded for overweighting to the Industrial Revenue sector as it outperformed the Index. California Municipal benefited from an overweight to the Lease-Backed sectors as it outperformed the Index.

Municipal’s and New York Municipal’s underweighting to the Transportation and Special Tax sectors detracted from results as these both outperformed the general municipal market. California Municipal’s underweight to the Water and Sewer Utility sector was detrimental given its outperformance versus the Index. California Municipal’s underweight to California State General Obligation municipal bonds also detracted from performance, as legislative measures and higher marginal income taxes led to the outperformance of the sector relative to the Index.

 

 

4   April 30, 2013  |   Annual Report


Performance and Statistics

PIMCO Municipal Income Funds

April 30, 2013 (unaudited)

 

Municipal Income:

Total Return(1):

  Market Price      NAV  

1 Year

    11.96%         14.26%   

5 Year

    7.29%         10.16%   

10 Year

    8.59%         7.72%   

Commencement of Operations (6/29/01) to 4/30/13

    7.81%         7.38%   

 

Market Price/NAV Performance:    

Commencement of Operations (6/29/01) to 4/30/13

 

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Market Price/NAV:      

Market Price

    $16.05   

NAV

    $13.75   

Premium to NAV

    16.73%   

Market Price Yield(2)

    6.07%   

Leverage Ratio(3)

    37.12%   

Moody’s Rating

(as a % of total investments)

 

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California Municipal Income

Total Return(1):

  Market Price      NAV  

1 Year

    9.96%         14.11%   

5 Year

    6.85%         9.43%   

10 Year

    7.89%         7.60%   

Commencement of Operations (6/29/01) to 4/30/13

    7.11%         7.29%   

 

Market Price/NAV Performance:

Commencement of Operations (6/29/01) to 4/30/13

 

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Market Price/NAV:  

Market Price

    $15.33   

NAV

    $14.71   

Premium to NAV

    4.21%   

Market Price Yield(2)

    6.03%   

Leverage Ratio(3)

    40.02%   

Moody’s Rating

(as a % of total investments)

 

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Annual Report  |   April 30, 2013     5   


Performance and Statistics

PIMCO Municipal Income Funds

April 30, 2013 (unaudited)

 

 

New York Municipal Income

Total Return(1):

  Market Price      NAV  

1 Year

    12.96%         12.07%   

5 Year

    5.74%         5.52%   

10 Year

    5.61%         5.29%   

Commencement of Operations (6/29/01) to 4/30/13

    4.84%         4.94%   

 

Market Price/NAV Performance:    

Commencement of Operations (6/29/01) to 4/30/13

 

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Market Price/NAV:      

Market Price

    $12.52   

NAV

    $12.04   

Premium to NAV

    3.99%   

Market Price Yield(2)

    5.46%   

Leverage Ratio(3)

    38.32%   

Moody’s Rating

(as a % of total investments)

 

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(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 dividends and 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.

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

An investment in the Funds involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at April 30, 2013.

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

 

6   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013

 

Principal
Amount
(000s)
              Value  
  Municipal Bonds & Notes – 96.9%            
  Alabama – 0.5%      
  Huntsville-Redstone Village Special Care Facs. Financing Auth. Rev.,
Redstone Village Project,
     
$ 250      5.50%, 1/1/28     $ 252,120   
  885      5.50%, 1/1/43       878,522   
  1,350      Montgomery Medical Clinic Board Rev., Jackson Hospital & Clinic, 5.25%, 3/1/31       1,399,734   
                  2,530,376   
  Alaska – 0.8%      
  3,280      Borough of Matanuska-Susitna Rev., Goose Creek Correctional Center,
6.00%, 9/1/32 (AGC)
      3,907,694   
  900      Industrial Dev. & Export Auth. Rev., Boys & Girls Home, 6.00%, 12/1/36 (b)(e)       451,800   
                  4,359,494   
  Arizona – 4.0%      
  Health Facs. Auth. Rev.,      
  2,050     

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

      2,295,918   
  2,750     

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

      2,727,340   
  1,500      Maricopa Cnty. Pollution Control Corp. Rev., Southern California Edison Co.,
5.00%, 6/1/35, Ser. A
      1,665,750   
  750      Pima Cnty. Industrial Dev. Auth. Rev., Tucson Electric Power Co.,
5.25%, 10/1/40, Ser. A
      822,180   
  5,000      Salt River Project Agricultural Improvement & Power Dist. Rev.,
5.00%, 1/1/39, Ser. A (h)
      5,701,200   
  7,700      Salt Verde Financial Corp. Rev., 5.00%, 12/1/37       8,638,399   
                  21,850,787   
  Arkansas – 0.3%      
  5,500      Dev. Finance Auth. Rev., Arkansas Cancer Research Center Project,
zero coupon, 7/1/36 (AMBAC)
        1,885,785   
  California – 13.6%      
  Bay Area Toll Auth. Rev., San Francisco Bay Area,      
  2,875      5.00%, 10/1/34       3,266,747   
  3,255      5.00%, 10/1/42       3,641,043   
  3,000      Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B       3,610,680   
  7,500      Golden State Tobacco Securitization Corp. Rev., 5.75%, 6/1/47, Ser. A-1       7,114,500   
  Health Facs. Financing Auth. Rev.,      
  2,000     

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

      2,392,280   
  1,500     

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

      1,830,780   
  5,300      Los Angeles Community College Dist., GO, 5.00%, 8/1/32, Ser. A (FGIC-NPFGC)       5,982,958   
  2,000      Los Angeles Unified School Dist., GO, 5.00%, 7/1/30, Ser. E (AMBAC)       2,154,040   
  2,000      M-S-R Energy Auth. Rev., 6.125%, 11/1/29, Ser. C       2,506,860   
  4,175      Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)       4,570,873   
  1,445      Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B       1,711,270   
  5,000      Orange Cnty. Airport Rev., 5.25%, 7/1/39, Ser. A       5,562,900   
  1,600      San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A       1,782,624   
  State, GO,      
  700      5.00%, 11/1/32       780,899   
  1,200      5.00%, 6/1/37       1,310,232   

 

Annual Report  |   April 30, 2013     7   


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  California (continued)      
$ 2,300      5.125%, 8/1/36     $ 2,582,900   
  1,250      5.25%, 3/1/38       1,400,538   
  1,900      5.25%, 11/1/40       2,172,688   
  500      5.50%, 3/1/40       592,220   
  3,200      6.00%, 4/1/38       3,825,408   
  Statewide Communities Dev. Auth. Rev.,      
  690     

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

      817,015   
  845     

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

      948,470   
  2,310     

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

      2,863,661   
  8,485     

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

      10,332,694   
  2,000      Whittier Union High School Dist., GO, zero coupon, 8/1/25       1,174,920   
                  74,929,200   
  Colorado – 1.2%      
  500      Confluence Metropolitan Dist. Rev., 5.45%, 12/1/34       382,050   
  450      Denver Health & Hospital Auth. Rev., 5.625%, 12/1/40       501,426   
  2,500      Health Facs. Auth. Rev., Catholic Health Initiatives, 5.00%, 2/1/41, Ser. A       2,748,775   
  500      Public Auth. for Colorado Energy Rev., 6.50%, 11/15/38       679,060   
  400      Regional Transportation Dist., CP, 5.375%, 6/1/31, Ser. A       456,332   
  1,500      Univ. of Colorado Rev., 5.375%, 6/1/38, Ser. A       1,750,020   
                  6,517,663   
  Connecticut – 1.5%      
  State Health & Educational Fac. Auth. Rev.,      
  5,000     

Hartford Healthcare, 5.00%, 7/1/41, Ser. A

      5,465,100   
  2,500     

Stamford Hospital, 5.00%, 7/1/42, Ser. J

      2,728,125   
                  8,193,225   
  District of Columbia – 1.1%      
  2,500      Dist. of Columbia Rev., Brookings Institution, 5.75%, 10/1/39       2,826,425   
  3,390      Tobacco Settlement Financing Corp. Rev., 6.25%, 5/15/24       3,468,953   
                  6,295,378   
  Florida – 2.2%      
  780      Beacon Lakes Community Dev. Dist., Special Assessment, 6.00%, 5/1/38, Ser. A       792,698   
  4,000      Broward Cnty. Water & Sewer Utility Rev., 5.25%, 10/1/34, Ser. A (h)       4,697,160   
  300      Dev. Finance Corp. Rev., Renaissance Charter School, 6.50%, 6/15/21, Ser. A       349,494   
  500      Lee Cnty. Industrial Dev. Auth. Rev., Lee Community Charter Foundation,
5.375%, 6/15/37, Ser. A
      504,280   
  1,250      Miami-Dade Cnty. School Board, CP, 5.375%, 2/1/34, Ser. A (AGC)       1,423,200   
  3,900      State Board of Education, GO, 5.00%, 6/1/38, Ser. D (h)       4,489,290   
                  12,256,122   
  Georgia – 0.4%      
  2,300      Medical Center Hospital Auth. Rev., Spring Harbor Green Island Project,
5.25%, 7/1/37
        2,305,796   
  Illinois – 2.5%      
  5,000      Chicago, GO, 5.00%, 1/1/34, Ser. C (h)       5,424,700   
  Finance Auth. Rev.,      
  400     

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

      488,216   

 

8   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  Illinois (continued)      
$ 190     

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

    $ 190,519   
  5,000     

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

      5,929,450   
  1,900      Springfield Electric Rev., 5.00%, 3/1/36       1,987,666   
                  14,020,551   
  Indiana – 1.6%      
  Finance Auth. Rev.,      
  1,500     

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

      1,719,480   
  3,000     

Ohio Valley Electric Corp., 5.00%, 6/1/32, Ser. A

      3,252,540   
  1,000      Municipal Power Agcy. Rev., 6.00%, 1/1/39, Ser. B       1,179,020   
  1,900      Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 7.50%, 9/1/22       2,473,572   
                  8,624,612   
  Iowa – 1.7%      
  Finance Auth. Rev.,      
  4,890     

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

      3,953,174   
  3,500     

Edgewater LLC Project, 6.75%, 11/15/37

      3,732,505   
  1,500     

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

      1,594,650   
                  9,280,329   
  Kansas – 0.4%      
  1,000      Dev. Finance Auth. Rev., Adventist Health, 5.75%, 11/15/38       1,156,270   
  1,000      Lenexa City, Tax Allocation, Center East Project, 6.00%, 4/1/27 (e)       550,000   
  650      Manhattan Rev., Meadowlark Hills Retirement, 5.125%, 5/15/42, Ser. B       656,702   
                  2,362,972   
  Kentucky – 0.4%      
  1,000      Economic Dev. Finance Auth. Rev., Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A       1,199,640   
  1,000      Ohio Cnty. Pollution Control Rev., Big Rivers Electric Corp. Project,
6.00%, 7/15/31, Ser. A
      1,004,530   
                  2,204,170   
  Louisiana – 2.9%      
  Local Gov’t Environmental Facs. & Community Dev. Auth Rev.,      
  1,680     

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

      1,887,799   
  400     

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

      478,212   
  750     

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

      885,210   
  2,000      Public Facs. Auth. Rev., Ochsner Clinic Foundation Project, 6.50%, 5/15/37       2,431,040   
  10,000      Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B       10,063,900   
                  15,746,161   
  Maryland – 0.4%      
  1,500      Economic Dev. Corp. Rev., 5.75%, 6/1/35, Ser. B       1,707,000   
  650      Health & Higher Educational Facs. Auth. Rev., Charlestown Community,
6.25%, 1/1/41
      747,494   
                  2,454,494   
  Massachusetts – 0.5%      
  Dev. Finance Agcy. Rev.,      
  750     

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

      862,208   
  103     

Linden Ponds, Inc. Fac., zero coupon, 11/15/56, Ser. B (b)

      772   

 

Annual Report  |   April 30, 2013     9   


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  Massachusetts (continued)      
$ 21     

Linden Ponds, Inc. Fac., 5.50%, 11/15/46, Ser. A-2 (b)

    $ 16,420   
  388     

Linden Ponds, Inc. Fac., 6.25%, 11/15/39, Ser. A-1

      351,675   
  1,500      State College Building Auth. Rev., 5.50%, 5/1/39, Ser. A       1,767,345   
                  2,998,420   
  Michigan – 2.2%      
  5,000      Detroit Water and Sewerage Dept. Rev., 5.25%, 7/1/39, Ser. A       5,495,300   
  1,500      Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 8.25%, 9/1/39       1,913,880   
  5,000      Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A       4,695,050   
                  12,104,230   
  Minnesota – 0.4%      
  95      Agricultural & Economic Dev. Board Rev., Health Care Systems,
6.375%, 11/15/29, Ser. A
      95,423   
  100      Duluth Housing & Redev. Auth. Rev., 5.875%, 11/1/40, Ser. A       103,269   
  1,500      St. Louis Park Rev., Nicollett Health Services, 5.75%, 7/1/39       1,690,830   
  500      Washington Cnty. Housing & Redev. Auth. Rev., Birchwood & Woodbury Projects,
5.625%, 6/1/37, Ser. A
      508,980   
                  2,398,502   
  Missouri – 0.3%      
  1,000      Joplin Industrial Dev. Auth. Rev., Christian Homes, Inc., 5.75%, 5/15/26, Ser. F       1,074,980   
  430      Lee’s Summit, Tax Allocation, Summit Fair Project, 5.625%, 10/1/23       459,674   
                  1,534,654   
  Nevada – 3.9%      
  Clark Cnty., GO,      
  5,000      4.75%, 6/1/30 (AGM)       5,450,650   
  5,230      4.75%, 11/1/35 (FGIC-NPFGC) (h)       5,561,268   
  9,755      Washoe Cnty., Water & Sewer, GO, 5.00%, 1/1/35 (NPFGC)       10,604,856   
                  21,616,774   
  New Jersey – 10.4%      
  16,550      Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project,
5.75%, 4/1/31
      18,789,049   
  2,000      Economic Dev. Auth. Rev., School Facs. Construction, 5.50%, 12/15/34,
Ser. Z (AGC)
      2,348,020   
  500      Health Care Facs. Financing Auth. Rev., AHS Hospital Corp., 6.00%, 7/1/37       614,760   
  2,000      State Turnpike Auth. Rev., 5.25%, 1/1/40, Ser. E       2,239,240   
  Tobacco Settlement Financing Corp. Rev., Ser. 1-A,      
  6,600      4.75%, 6/1/34       5,821,398   
  22,000      5.00%, 6/1/41       19,573,840   
  7,000      Transportation Trust Fund Auth. Rev., 5.00%, 6/15/42, Ser. B       7,746,480   
                  57,132,787   
  New Mexico – 1.5%      
  1,000      Farmington Pollution Control Rev., 5.90%, 6/1/40, Ser. D       1,120,000   
  6,400      Hospital Equipment Loan Council Rev., Presbyterian Healthcare, 5.00%, 8/1/39       6,971,456   
                  8,091,456   

 

10   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  New York – 13.5%      
  Hudson Yards Infrastructure Corp. Rev., Ser. A,      
$ 4,000      5.00%, 2/15/47 (FGIC)     $ 4,255,920   
  15,500      5.25%, 2/15/47       17,570,335   
  Liberty Dev. Corp. Rev., Goldman Sachs Headquarters,      
  7,500      5.25%, 10/1/35       8,940,750   
  3,000      5.50%, 10/1/37       3,729,450   
  Metropolitan Transportation Auth. Rev.,      
  3,000      5.00%, 11/15/36, Ser. D       3,388,470   
  4,000      5.00%, 11/15/43, Ser. B       4,471,600   
  4,200      Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside,
6.70%, 1/1/43, Ser. A
      2,522,226   
  3,000      New York City Water & Sewer System Rev., Second Generation Resolutions,
5.00%, 6/15/39, Ser. GG-1
      3,377,550   
  New York Liberty Dev. Corp. Rev.,      
  10,000     

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

      11,337,800   
  10,000     

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

      11,028,400   
  3,500      State Dormitory Auth. Rev., The New School, 5.50%, 7/1/40       3,984,960   
                  74,607,461   
  North Carolina – 0.3%      
  1,500      Medical Care Commission Rev., Village at Brookwood, 5.25%, 1/1/32         1,545,150   
  Ohio – 1.9%      
  2,000      American Municipal Power, Inc. Rev., Fremont Energy Center Project,
5.00%, 2/15/42, Ser. B
      2,220,280   
  4,250      Buckeye Tobacco Settlement Financing Auth. Rev., 5.875%, 6/1/47, Ser. A-2       3,781,778   
  3,000      Hamilton Cnty. Healthcare Rev., Christ Hospital Project, 5.00%, 6/1/42       3,200,490   
  500      Higher Educational Fac. Commission Rev., Univ. Hospital Health Systems,
6.75%, 1/15/39, Ser. 2009-A (Pre-refunded @ $100, 1/15/15) (c)
      554,370   
  500      Montgomery Cnty. Rev., Miami Valley Hospital,
6.25%, 11/15/39, Ser. A (Pre-refunded @ $100, 11/15/14) (c)
      545,640   
                  10,302,558   
  Oregon – 0.6%      
  2,000      Oregon Health & Science Univ. Rev., 5.75%, 7/1/39, Ser. A       2,360,180   
  600      State Department of Administrative Services, CP, 5.25%, 5/1/39, Ser. A       663,504   
                  3,023,684   
  Pennsylvania – 5.4%      
  3,500      Berks Cnty. Municipal Auth. Rev., Reading Hospital Medical Center,
5.00%, 11/1/40, Ser. A
      3,867,990   
  5,000      Geisinger Auth. Rev., 5.25%, 6/1/39, Ser. A       5,550,250   
  2,000      Harrisburg Auth. Rev., Harrisburg Univ. of Science, 6.00%, 9/1/36, Ser. B (e)       1,467,280   
  Higher Educational Facs. Auth. Rev.,      
  500     

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

      565,360   
  350     

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

      385,868   
  Lancaster Cnty. Hospital Auth. Rev., Brethren Village Project, Ser. A,      
  750      6.25%, 7/1/26       806,017   
  85      6.375%, 7/1/30       91,281   

 

Annual Report  |   April 30, 2013     11   


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  Pennsylvania (continued)      
$ 1,100      Luzerne Cnty. Industrial Dev. Auth. Rev., Pennsylvania American Water Co.,
5.50%, 12/1/39
    $ 1,221,407   
  7,000      Philadelphia, GO, 5.25%, 12/15/32, Ser. A (AGM)       7,717,010   
  5,000      Philadelphia Hospitals & Higher Education Facs. Auth. Rev., Temple Univ. Health System, 5.625%, 7/1/36, Ser. A       5,508,900   
  500      Philadelphia Water & Wastewater Rev., 5.25%, 1/1/36, Ser. A       558,705   
  2,000      Turnpike Commission Rev., 5.125%, 12/1/40, Ser. D       2,175,940   
                  29,916,008   
  Rhode Island – 4.4%      
  23,800      Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A         24,370,486   
  South Carolina – 0.5%      
  450      Jobs-Economic Dev. Auth. Rev., Lutheran Homes, 5.50%, 5/1/28       465,453   
  2,200      State Ports Auth. Rev., 5.25%, 7/1/40       2,471,524   
                  2,936,977   
  Tennessee – 2.2%      
  940      Memphis Health Educational & Housing Fac. Board Rev., Wesley Housing Corp. Project, 6.95%, 1/1/20 (a)(b)(d)(e)(i) (acquisition cost-$932,489; purchased 6/29/01)       472,350   
  Tennessee Energy Acquisition Corp. Rev.,      
  5,000      5.00%, 2/1/27, Ser. C       5,637,500   
  5,000      5.25%, 9/1/24, Ser. A       5,909,850   
                  12,019,700   
  Texas – 9.6%      
  1,200      Dallas Rev., Dallas Civic Center, 5.25%, 8/15/38 (AGC)       1,339,680   
  3,000      Harris Cnty. Cultural Education Facs. Finance Corp. Rev., Baylor College of Medicine, 5.00%, 11/15/37       3,351,750   
  2,000      Love Field Airport Modernization Corp. Rev., Southwest Airlines Co. Project,
5.25%, 11/1/40
      2,182,140   
  North Harris Cnty. Regional Water Auth. Rev.,      
  4,200      5.25%, 12/15/33       4,733,568   
  4,200      5.50%, 12/15/38       4,757,466   
  North Texas Tollway Auth. Rev.,      
  2,750      5.00%, 1/1/38       3,030,802   
  3,000      5.25%, 1/1/44, Ser. C       3,275,400   
  600      5.50%, 9/1/41, Ser. A       711,726   
  6,050      5.625%, 1/1/33, Ser. A       6,891,010   
  600      5.75%, 1/1/33, Ser. F       678,498   
  250      San Juan Higher Education Finance Auth. Rev., 6.70%, 8/15/40, Ser. A       296,623   
  State Public Finance Auth. Charter School Finance Corp. Rev., Ser. A,      
  400      5.875%, 12/1/36       434,212   
  2,000     

Cosmos Foundation, 5.375%, 2/15/37

      2,085,440   
  4,000      Tarrant Cnty. Cultural Education Facs. Finance Corp. Rev., Baylor Health Care Systems Project, 6.25%, 11/15/29       4,756,960   
  Texas Municipal Gas Acquisition & Supply Corp. I Rev.,      
  3,500      5.25%, 12/15/23, Ser. A       4,117,260   
  6,500      6.25%, 12/15/26, Ser. D       8,268,195   

 

12   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  Texas (continued)      
$ 1,000      Uptown Dev. Auth., Tax Allocation, Infrastructure Improvement Facs.,
5.50%, 9/1/29
    $ 1,125,270   
  500      Wise Cnty. Rev., Parker Cnty. Junior College Dist., 8.00%, 8/15/34       601,415   
                  52,637,415   
  U. S. Virgin Islands – 0.1%      
  500      Virgin Islands Public Finance Auth. Rev., 5.00%, 10/1/39, Ser. A-1         530,915   
  Utah – 1.5%      
  7,000      Salt Lake Cnty. Rev., IHC Health Services, 5.125%, 2/15/33 (AMBAC)         8,124,830   
  Virginia – 0.6%      
  1,000      Fairfax Cnty. Industrial Dev. Auth. Rev., Inova Health Systems,
5.50%, 5/15/35, Ser. A
      1,162,170   
  1,985      Peninsula Town Center Community Dev. Auth. Rev., 6.45%, 9/1/37       2,141,180   
                  3,303,350   
  Washington – 1.3%      
  Health Care Facs. Auth. Rev.,      
  700     

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

      808,997   
  250     

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

      319,287   
  2,000     

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

      2,197,840   
  State Housing Finance Commission Rev., Skyline at First Hill Project, Ser. A,      
  230      5.25%, 1/1/17       236,569   
  3,600      5.625%, 1/1/38       3,619,188   
                  7,181,881   
  West Virginia – 0.2%      
  1,000      Hospital Finance Auth. Rev., Highland Hospital, 9.125%, 10/1/41         1,285,670   
  Wisconsin – 0.1%      
  500      Health & Educational Facs. Auth. Rev., Prohealth Care, Inc., 6.625%, 2/15/39         585,985   
        Total Municipal Bonds & Notes (cost-$469,389,916)         534,066,008   
       
  Variable Rate Notes (a)(d)(f)(g) – 2.2%            
  Texas – 0.4%      
  1,000      JPMorgan Chase Putters/Drivers Trust, GO, 9.31%, 2/1/17, Ser. 3480       1,316,410   
  600      JPMorgan Chase Putters/Drivers Trust Rev., 9.92%, 10/1/31, Ser. 3227       847,824   
                  2,164,234   
  Washington – 1.8%      
  6,670      JPMorgan Chase Putters/Drivers Trust, GO, 13.565%, 8/1/28, Ser. 3388         9,823,309   
        Total Variable Rate Notes (cost-$8,162,784)         11,987,543   
  Repurchase Agreements – 0.9%      
  4,900      Citigroup Global Markets, Inc., dated 4/30/13, 0.16%, due 5/1/13, proceeds $4,900,022; collateralized by U.S. Treasury Notes, 0.75%, due 10/31/17, valued at $5,002,726 including accrued interest (cost-$4,900,000)         4,900,000   
        Total Investments (cost-$482,452,700) – 100.0%         $550,953,551   

 

Annual Report  |   April 30, 2013     13   


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

Industry classification of portfolio holdings as a percentage of total investments at April 30, 2013 was as follows:

 

Revenue Bonds:

   

Health, Hospital & Nursing Home Revenue

    21.8  

Miscellaneous Revenue

    12.3     

Tobacco Settlement Funded

    10.2     

Natural Gas Revenue

    7.1     

College & University Revenue

    4.5     

Port, Airport & Marina Revenue

    4.2     

Water Revenue

    3.7     

Electric Power & Light Revenue

    3.4     

Miscellaneous Taxes

    3.2     

Industrial Revenue

    3.1     

Highway Revenue Tolls

    3.0     

Transit Revenue

    1.4     

Sewer Revenue

    1.0     

Lease (Appropriation)

    0.7     

Ad Valorem Property Tax

    0.5     

Tobacco & Liquor Taxes

    0.1     

Local or Guaranteed Housing

    0.1     
 

 

 

   

Total Revenue Bonds

      80.3

General Obligation

      14.3   

Special Assessment

      3.6   

Repurchase Agreements

      0.9   

Certificates of Participation

      0.5   

Tax Allocation

      0.4   
   

 

 

 

Total Investments

      100.0
   

 

 

 

Notes to Schedule of Investments:

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $12,459,893, representing 2.3% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date).  

 

(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, 2013.  

 

(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, 2013.  

 

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

 

(i)   Restricted. The aggregate acquisition cost of such security is $932,489. The aggregate value is $472,350, representing 0.1% of total investments.  

 

14   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

 

(j)   Floating Rate Notes for the year ended April 30, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2013 was $15,563,277 at a weighted average interest rate, including fees, of 0.73%.  

 

(k)   Fair Value Measurements – See Note 1(b) in the Notes to Financial Statements.  

 

     Level 1
Quoted Prices
    Level 2
Other Significant
Observable
Inputs
    Level 3
Significant
Unobservable
Inputs
    Value at
4/30/13
 
Investments in Securities – Assets        

Municipal Bonds & Notes:

       

Tennessee

  $      $ 11,547,350      $ 472,350      $ 12,019,700   

All Other

           522,046,308               522,046,308   

Variable Rate Notes

           11,987,543               11,987,543   

Repurchase Agreements

           4,900,000               4,900,000   
Totals   $      $ 550,481,201      $ 472,350      $ 550,953,551   

At April 30, 2013, there were no transfers between Levels 1 and 2.

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the year ended April 30, 2013, was as follows:

 

     Beginning
Balance
4/30/12
    Purchases     Sales     Accrued
Discount
(Premiums)
    Net
Realized
Gain (Loss)
    Net Change
in Unrealized
Appreciation/
Depreciation
    Transfers
into
Level 3
    Transfers
out of
Level 3*
    Ending
Balance
4/30/13
 

Investments in Securities – Assets

  

               

Municipal Bonds & Notes:

                 

Alaska

  $ 482,850      $      $      $ 856      $      $ (31,906   $      $ (451,800   $   

Tennessee

    472,350                                                         472,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 955,200      $      $      $ 856      $      $ (31,906   $      $ (451,800   $ 472,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at April 30, 2013.

 

     Ending
Balance at
4/30/13
    Valuation
Technique Used
  Unobservable
Inputs
  Input
Values
 

Municipal Bonds & Notes

  $ 472,350      Third-Party pricing vendor   Single Broker Quote   $ 50.25   

 

n   Transferred out of Level 3 into Level 2 because an evaluated price with observable inputs from an independent third-party pricing vendor became available.

There was no net change in unrealized appreciation/depreciation of Level 3 investments held at April 30, 2013. Net change in unrealized appreciation/depreciation is reflected on the Statement of Operations.

 

Annual Report  |   April 30, 2013     15   


Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2013 (continued)

 

 

(l)   Financial Derivative Instruments  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2013:

 

Location   Interest
Rate
Contracts
 
Net realized loss on:  

Futures contracts

  $ (808,634
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Futures contracts

  $ 351,605   
 

 

 

 

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended April 30, 2013:

 

     Futures
Contracts
Short(1)
Municipal   (10)

 

(1)    Number of Contracts  

 

 

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.
CP     -      Certificates of Participation
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GO     -      General Obligation Bond
NPFGC     -      insured by National Public Finance Guarantee Corp.

 

16   Annual Report  |     April 30. 2013  |     See accompanying Notes to Financial Statements


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013

 

Principal
Amount
(000s)
              Value  
  California Municipal Bonds & Notes – 92.8%            
$ 10,000      Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/34, Ser. F-1     $ 11,301,500   
  5,000      Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B       6,017,800   
  650      City & Cnty. of San Francisco, Capital Improvement Projects, CP,
5.25%, 4/1/31, Ser. A
      715,709   
  350      Contra Costa Cnty. Public Financing Auth., Tax Allocation, 5.85%, 8/1/33, Ser. A       350,294   
  5,000      Desert Community College Dist., GO, 5.00%, 8/1/37, Ser. C (AGM)       5,626,850   
  310      Dublin Unified School Dist., GO, zero coupon, 8/1/23, Ser. E       221,018   
  6,300      Eastern Municipal Water Dist., CP, 5.00%, 7/1/35, Ser. H       7,192,332   
  Educational Facs. Auth. Rev. (f),      
  10,200     

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

      11,276,814   
  10,000     

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

      11,486,900   
  2,975      El Dorado Irrigation Dist. & El Dorado Water Agcy., CP, 5.75%, 8/1/39, Ser. A (AGC)       3,139,726   
  14,425      El Monte, Department of Public Social Services Fac., Phase II, CP,
5.25%, 1/1/34 (AMBAC) (a)
      14,474,189   
  1,000      Folsom Redev. Agcy., Tax Allocation, 5.50%, 8/1/36       1,044,430   
  Fremont Community Facs. Dist. No. 1, Special Tax,      
  165      6.00%, 9/1/18       166,323   
  505      6.00%, 9/1/19       508,883   
  3,500      6.30%, 9/1/31       3,518,305   
  Golden State Tobacco Securitization Corp. Rev.,      
  3,000      5.00%, 6/1/35, Ser. A (FGIC)       3,146,520   
  6,000      5.00%, 6/1/38, Ser. A (FGIC)       6,280,620   
  1,600      5.00%, 6/1/45 (AMBAC-TCRS)       1,669,552   
  8,300      5.125%, 6/1/47, Ser. A-1       7,272,211   
  38,175      5.75%, 6/1/47, Ser. A-1       36,212,805   
  Health Facs. Financing Auth. Rev.,      
  2,000     

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

      2,350,020   
  2,000     

Catholic Healthcare West, 6.00%, 7/1/34, Ser. A

      2,099,840   
  4,000     

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

      4,784,560   
  750     

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

      788,753   
  1,000     

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

      1,219,650   
  1,450     

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

      1,602,758   
  3,400     

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

      3,905,886   
  1,000     

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

      1,121,520   
  1,600     

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

      1,708,720   
  3,000     

Sutter Health, 5.00%, 8/15/52, Ser. A

      3,277,200   
  2,800     

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

      3,417,456   
  1,000      Imperial Irrigation Dist. Rev., 5.00%, 11/1/41, Ser. C       1,090,560   
  10,590      Kern Cnty., Capital Improvements Projects, CP, 5.75%, 8/1/35, Ser. A (AGC)       12,091,662   
  7,000      La Quinta Redev. Agcy., Tax Allocation, 5.10%, 9/1/31 (AMBAC)       7,011,550   
  500      Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39       564,555   
  500      Lancaster Redev. Agcy. Rev., Capital Improvements Projects, 5.90%, 12/1/35       546,520   
  5,500      Long Beach Airport Rev., 5.00%, 6/1/40, Ser. A       5,909,585   
  Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, Ser. A,      
  1,000      5.50%, 11/15/27       1,192,200   
  3,900      5.50%, 11/15/37       4,815,954   

 

Annual Report  |   April 30, 2013     17   


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
$ 1,000      Los Angeles Department of Airports Rev., 5.00%, 5/15/40, Ser. D     $ 1,132,050   
  Los Angeles Department of Water & Power Rev.,      
  5,000      4.75%, 7/1/30, Ser. A-2 (AGM) (f)       5,254,500   
  2,000      5.00%, 7/1/41, Ser. A       2,251,480   
  1,500      5.00%, 7/1/43, Ser. B       1,715,430   
  3,000      5.375%, 7/1/34, Ser. A (f)       3,523,500   
  7,000      5.375%, 7/1/38, Ser. A (f)       8,152,410   
  Los Angeles Unified School Dist., GO,      
  10,000      5.00%, 7/1/29, Ser. I (f)       11,730,600   
  3,500      5.00%, 1/1/34, Ser. I       4,031,160   
  5,000      5.00%, 1/1/34, Ser. I (f)       5,758,800   
  250      5.30%, 1/1/34, Ser. D       293,788   
  1,900      M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B       2,609,726   
  700      Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A       759,724   
  Municipal Finance Auth. Rev.,      
  1,085     

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

      1,284,933   
  2,900     

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

      3,292,196   
  2,145      Patterson Public Financing Auth. Rev., Waste Water System Financing Project, 5.50%, 6/1/39 (AGC)       2,339,959   
  1,250      Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C       1,383,838   
  Pollution Control Financing Auth. Rev.,      
  1,250     

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

      1,349,800   
  2,000     

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

      2,192,460   
  San Diego Cnty. Water Auth., CP,      
  350      5.00%, 5/1/32, Ser. A (NPFGC)       350,000   
  6,250      5.00%, 5/1/38, Ser. 2008-A (AGM)       6,998,062   
  3,285      San Diego Regional Building Auth. Rev., Cnty. Operations Center & Annex,
5.375%, 2/1/36, Ser. A
      3,808,300   
  12,610      San Francisco Public Utilities Commission Water Rev., 5.00%, 11/1/43       14,350,684   
  San Joaquin Hills Transportation Corridor Agcy. Rev., Ser. A,      
  5,000      5.50%, 1/15/28       5,001,800   
  5,000      5.70%, 1/15/19       5,167,050   
  230      San Jose, Special Assessment, 5.60%, 9/2/17, Ser. 24-Q       238,163   
  1,500      San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36       1,821,945   
  1,200      San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A       1,336,968   
  3,500      Santa Clara Cnty. Financing Auth. Rev., El Camino Hospital,
5.75%, 2/1/41, Ser. A (AMBAC)
      3,896,970   
  1,300      Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community,
7.00%, 9/1/36, Ser. A
      1,548,859   
  State, GO,      
  5,885      5.00%, 9/1/35       6,456,492   
  100      5.00%, 6/1/37       109,186   
  3,000      5.00%, 12/1/37       3,307,440   
  2,400      5.25%, 11/1/40       2,744,448   
  1,500      5.50%, 3/1/40       1,776,660   
  2,000      6.00%, 4/1/38       2,390,880   

 

18   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
$ 2,000      6.00%, 11/1/39     $ 2,422,560   
  State Public Works Board Rev.,      
  2,000      5.75%, 10/1/30, Ser. G-1       2,360,720   
  2,000     

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

      2,399,980   
  1,500     

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

      1,690,305   
  2,000     

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

      2,250,880   
  Statewide Communities Dev. Auth. Rev.,      
  1,000     

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

      1,139,420   
  900     

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

      965,853   
  845     

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

      948,470   
  10,000     

Cottage Health, 5.00%, 11/1/40

      11,071,600   
  13,050     

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

      13,087,192   
  1,000     

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

      1,082,000   
  1,000     

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

      1,144,790   
  3,000     

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

      3,060,090   
  1,870     

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

      2,318,202   
  6,875     

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

      8,372,100   
  100     

St. Joseph Health System, 5.125%, 7/1/24 (NPFGC)

      115,674   
  3,200     

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

      3,640,672   
  2,000     

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

      2,441,040   
  8,000     

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

      8,025,760   
  4,000     

Univ. of California Irvine E. Campus, 5.125%, 5/15/31

      4,439,880   
  4,500     

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

      4,967,010   
  6,300      Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A       6,914,376   
  2,000      Turlock, Emanuel Medical Center, CP, 5.50%, 10/15/37, Ser. B       2,160,900   
  Univ. of California Rev.,      
  2,000      5.00%, 5/15/33, Ser. A (AMBAC) (Pre-refunded @ $100 5/15/13) (b)       2,003,220   
  10,000      5.00%, 5/15/36, Ser. A (AMBAC) (Pre-refunded @ $100 5/15/13) (b)       10,016,200   
  4,000      5.00%, 5/15/42, Ser. G       4,547,480   
  1,000      Westlake Village, CP, 5.00%, 6/1/39       1,045,460   
        Total California Municipal Bonds & Notes (cost-$363,898,441)         416,113,825   
       
  Other Municipal Bonds & Notes – 4.2%            
  Iowa – 1.9%      
  8,600      Tobacco Settlement Auth. Rev., 5.60%, 6/1/34, Ser. B         8,599,570   
  Ohio – 1.0%      
  4,000      American Municipal Power, Inc. Rev., Fremont Energy Center Project,
5.00%, 2/15/42, Ser. B
        4,440,560   
  Texas – 1.3%      
  5,000      Wood Cnty. Central Hospital Dist. Rev., East Texas Medical Center Quitman Project, 6.00%, 11/1/41         5,772,600   
        Total Other Municipal Bonds & Notes (cost-$18,177,662)         18,812,730   

 

Annual Report  |   April 30, 2013     19   


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
  California Variable Rate Notes (a)(c)(d)(e) – 2.3%            
  Health Facs. Financing Auth. Rev.,      
$ 1,000      9.389%, 11/15/36, Ser. 3193     $ 1,235,960   
  6,000      11.554%, 11/15/42, Ser. 3255       6,960,480   
  1,670      Sacramento Cnty. Sanitation Dists. Financing Auth. Rev.,
13.511%, 8/1/13, Ser. 1034 (NPFGC)
      2,045,600   
        Total California Variable Rate Notes (cost-$6,358,429)         10,242,040   
                     
  Short-Term Investments – 0.7%            
  U.S. Government Agency Securities – 0.5%      
  2,300      Freddie Mac Discount Notes,
0.162%, 1/15/14 (g) (cost-$2,297,352)
        2,297,352   
  Repurchase Agreements – 0.2%      
  800      Citigroup Global Markets, Inc., dated 4/30/13, 0.16%, due 5/1/13, proceeds $800,004; collateralized by U.S. Treasury Notes, 2.125%, due 12/31/15, valued at $816,356 including accrued interest (cost-$800,000)         800,000   
        Total Short-Term Investments (cost-$3,097,352)         3,097,352   
        Total Investments (cost-$391,531,884) – 100.0%       $ 448,265,947   

Industry classification of portfolio holdings as a percentage of total investments at April 30, 2013 was as follows:

 

Revenue Bonds:

   

Health, Hospital & Nursing Home Revenue

    21.7  

Tobacco Settlement Funded

    14.1     

College & University Revenue

    10.3     

Water Revenue

    7.5     

Highway Revenue Tolls

    4.8     

Natural Gas Revenue

    3.3     

Lease (Abatement)

    2.9     

Electric Power & Light Revenue

    2.4     

Local or Guaranteed Housing

    2.3     

Port, Airport & Marina Revenue

    1.6     

Sewer Revenue

    1.0     

Hotel Occupancy Tax

    0.4     
 

 

 

   

Total Revenue Bonds

      72.3

Certificates of Participation

      12.7   

General Obligation

      11.0   

Tax Allocation

      2.3   

Special Tax

      0.9   

U.S. Government Agency Securities

      0.5   

Repurchase Agreements

      0.2   

Special Assessment

      0.1   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

20   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013 (continued)

 

Notes to Schedule of Investments:

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $26,066,029, representing 5.8% of total investments.  

 

(b)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date).  

 

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

 

(d)   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, 2013.  

 

(e)   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, 2013.  

 

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

 

(g)   Rates reflect the effective yields at purchase date.  

 

(h)   Floating Rate Notes for the year ended April 30, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2013 was $31,918,925 at a weighted average interest rate, including fees, of 0.76%.  

 

(i)   Fair Value Measurements – See Note 1(b) in the Notes to Financial Statements.  

 

     Level 1
Quoted Prices
    Level 2
Other Significant
Observable
Inputs
    Level 3
Significant
Unobservable
Inputs
    Value at
4/30/13
 
Investments in Securities – Assets        

California Municipal Bonds & Notes

  $      $ 416,113,825      $      $ 416,113,825   

Other Municipal Bonds & Notes

           18,812,730               18,812,730   

California Variable Rate Notes

           10,242,040               10,242,040   

Short-Term Investments

           3,097,352               3,097,352   
Totals   $      $ 448,265,947      $      $ 448,265,947   

At April 30, 2013, there were no transfers between Levels 1 and 2.

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the year ended April 30, 2013, was as follows:

 

     Beginning
Balance
4/30/12
    Purchases     Sales   Accrued
Discount
(Premiums)
    Net
Realized
Gain (Loss)
    Net Change
in Unrealized
Appreciation/
Depreciation
    Transfers
into
Level 3
    Transfers
out of
Level 3
    Ending
Balance
4/30/13
 

Investments in Securities – Assets

  

             

California Municipal Bonds & Notes

  $ 627,900      $      $(355,075)   $      $ (554,925   $ 282,100      $      $      $   
 

 

 

   

 

 

   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statements of Operations.

 

Annual Report  |   April 30, 2013     21   


Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2013 (continued)

 

 

(j)   Financial Derivative Instruments  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2013:

 

Location   Interest
Rate
Contracts
 
Net realized loss on:  

Futures contracts

  $ (646,907
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Futures contracts

  $ 281,284   
 

 

 

 

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended April 30, 2013:

 

     Futures
Contracts
Short(1)
California Municipal   (8)

 

(1)   Number of Contracts  

 

 

Glossary:

 

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

 

22   Annual Report  |     April 30. 2013  |     See accompanying Notes to Financial Statements


Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2013

 

Principal
Amount
(000s)
              Value  
  New York Municipal Bonds & Notes – 96.3%            
$ 1,600      Erie Cnty. Industrial Dev. Agcy. Rev., Orchard Park, Inc. Project,
6.00%, 11/15/36, Ser. A
    $ 1,629,440   
  Hudson Yards Infrastructure Corp. Rev., Ser. A,      
  3,000      5.25%, 2/15/47       3,400,710   
  4,000      5.75%, 2/15/47       4,700,640   
  Liberty Dev. Corp. Rev.,      
  1,500     

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

      1,803,105   
  120     

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

      143,052   
  11,290     

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

      13,458,809   
  1,925     

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

      2,393,064   
  Long Island Power Auth. Rev., Ser. A,      
  750      5.00%, 9/1/34 (AMBAC)       773,618   
  4,500      5.75%, 4/1/39       5,271,930   
  1,000      Metropolitan Transportation Auth. Rev., 5.00%, 11/15/43, Ser. B       1,117,900   
  1,600      Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside,
6.70%, 1/1/43, Ser. A
      960,848   
  3,500      New York City Health & Hospital Corp. Rev., 5.00%, 2/15/30, Ser. A       3,979,500   
  New York City Industrial Dev. Agcy. Rev.,      
  1,000     

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

      1,043,000   
  900     

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

      1,041,525   
  3,200     

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

      3,948,896   
  5,000      New York City Transitional Finance Auth. Rev., 5.25%, 1/15/39, Ser. S-3       5,827,150   
  New York City Water & Sewer System Rev.,      
  2,500      5.00%, 6/15/40, Ser. FF-2       2,790,750   
  5,000     

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

      5,488,750   
  2,000     

Second Generation Resolutions, 5.00%, 6/15/32, Ser. HH

      2,325,300   
  New York Liberty Dev. Corp. Rev.,      
  2,000     

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

      2,267,560   
  6,000     

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

      7,114,860   
  1,000      Niagara Falls Public Water Auth. Water & Sewer Rev., 5.00%, 7/15/34,
Ser. A (NPFGC)
      1,006,530   
  600      Onondaga Cnty. Rev., Syracuse Univ. Project, 5.00%, 12/1/36       684,792   
  Port Auth. of New York & New Jersey Rev.,      
  4,300      5.00%, 9/1/38, Ser. 132       4,393,138   
  1,000     

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

      1,189,280   
  State Dormitory Auth. Rev.,      
  500      5.00%, 7/1/35, Ser. A       563,990   
  1,000      5.00%, 3/15/38, Ser. A       1,131,520   
  1,110      5.00%, 3/15/42, Ser. B       1,264,978   
  2,850      5.00%, 7/1/42, Ser. A       3,261,740   
  1,000     

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

      1,160,110   
  2,000     

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

      2,215,780   
  1,300     

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

      1,408,615   
  4,500     

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

      5,083,290   
  1,225     

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

      1,464,549   

 

Annual Report  |   April 30, 2013     23   


Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2013 (continued)

 

Principal
Amount
(000s)
              Value  
$ 1,000     

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

    $ 1,091,050   
  2,500     

Sloan-Kettering Center Memorial, 4.50%, 7/1/35, Ser. A-1

      2,657,075   
  3,850     

Sloan-Kettering Center Memorial, 5.00%, 7/1/34, Ser. 1
(Pre-refunded @ $100 7/1/13) (a)

      3,879,799   
  1,800     

Teachers College, 5.50%, 3/1/39

      1,979,244   
  1,250     

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

      1,423,200   
  State Thruway Auth. Rev., Ser. I,      
  2,000      5.00%, 1/1/37       2,255,840   
  3,645      5.00%, 1/1/42       4,070,517   
  1,800      State Urban Dev. Corp. Rev., 5.00%, 3/15/36, Ser. B-1 (b)       2,038,842   
  3,000      Triborough Bridge & Tunnel Auth. Rev., 5.25%, 11/15/34, Ser. A-2 (b)       3,516,870   
  3,000      Troy Capital Res. Corp. Rev., Rensselaer Polytechnic Institute Project,
5.125%, 9/1/40, Ser. A
      3,320,730   
  5,860      Troy Industrial Dev. Auth. Rev., Rensselaer Polytechnic Institute Project,
4.625%, 9/1/26
      6,626,078   
  TSACS, Inc. Rev., Ser. 1,      
  3,000      5.00%, 6/1/26       2,985,660   
  3,000      5.00%, 6/1/34       2,740,680   
  1,455      5.125%, 6/1/42       1,297,205   
  2,945      Warren & Washington Cntys. Industrial Dev. Agcy. Rev., Glens Falls Hospital Project, 5.00%, 12/1/27, Ser. C (AGM)       2,986,583   
  910      Westchester Cnty. Healthcare Corp. Rev., 6.125%, 11/1/37, Ser. C-2       1,069,550   
  200      Yonkers Economic Dev. Corp. Rev., Charter School of Educational Excellence Project, 6.00%, 10/15/30,
Ser. A
      212,052   
  400      Yonkers Industrial Dev. Agcy. Rev., Sarah Lawrence College Project,
6.00%, 6/1/41, Ser. A
      455,484   
        Total New York Municipal Bonds & Notes (cost-$127,571,916)         140,915,178   
       
  Other Municipal Bonds & Notes – 2.1%            
  Ohio – 1.7%      
  Buckeye Tobacco Settlement Financing Auth. Rev., Ser. A-2,      
  2,000      5.875%, 6/1/47       1,779,660   
  750      6.50%, 6/1/47       727,005   
                  2,506,665   
  U. S. Virgin Islands – 0.4%      
  500      Virgin Islands Public Finance Auth. Rev., 5.00%, 10/1/39, Ser. A-1         530,915   
        Total Other Municipal Bonds & Notes (cost-$2,723,130)         3,037,580   
  Repurchase Agreements – 1.6%      
  2,300      Citigroup Global Markets, Inc., dated 4/30/13, 0.18%, due 5/1/13, proceeds $2,300,012; collateralized by U.S. Treasury Notes, 2.125%, due 2/29/16, valued at $2,347,867 including accrued interest (cost-$2,300,000)         2,300,000   
        Total Investments (cost-$132,595,046) – 100.0%       $ 146,252,758   

 

24   April 30, 2013  |   Annual Report


Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2013 (continued)

 

Industry classification of portfolio holdings as a percentage of total investments at April 30, 2013 was as follows:

 

Revenue Bonds:

   

College & University Revenue

    18.5  

Miscellaneous Revenue

    14.2     

Health, Hospital & Nursing Home Revenue

    12.2     

Industrial Revenue

    9.8     

Water Revenue

    7.9     

Highway Revenue Tolls

    6.7     

Tobacco Settlement Funded

    6.5     

Miscellaneous Taxes

    5.5     

Port, Airport & Marina Revenue

    5.4     

Electric Power & Light Revenue

    4.1     

Income Tax Revenue

    3.0     

Recreational Revenue

    2.7     

Transit Revenue

    0.8     

Economic Development Revenue

    0.7     

Tobacco & Liquor Taxes

    0.4     
 

 

 

   

Total Revenue Bonds

      98.4

Repurchase Agreements

      1.6   
   

 

 

 

Total Investments

      100.0
   

 

 

 

Notes to Schedule of Investments:

 

(a)   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).  

 

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

 

(c)   Floating Rate Notes for the year ended April 30, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2013 was $10,476,876 at a weighted average interest rate, including fees, of 0.54%.  

 

(d)   Fair Value Measurements – See Note 1(b) in the Notes to Financial Statements.  

 

     Level 1
Quoted Prices
    Level 2
Other Significant
Observable
Inputs
    Level 3
Significant
Unobservable
Inputs
    Value at
4/30/13
 
Investments in Securities – Assets        

New York Municipal Bonds & Notes

  $      $ 140,915,178      $      $ 140,915,178   

Other Municipal Bonds & Notes

           3,037,580               3,037,580   

Repurchase Agreements

           2,300,000               2,300,000   
Totals   $      $ 146,252,758      $      $ 146,252,758   

At April 30, 2013, there were no transfers between Levels 1 and 2.

 

Annual Report  |   April 30, 2013     25   


Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2013 (continued)

 

 

(e)   Financial Derivative Instruments  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2013:

 

Location   Interest
Rate
Contracts
 
Net realized loss on:  

Futures contracts

  $ (161,727
 

 

 

 
Net change in unrealized appreciation/depreciation of:  

Futures contracts

  $ 70,321   
 

 

 

 

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended April 30, 2013:

 

     Futures
Contracts
Short(1)
 

New York Municipal

    (2

 

(1)   Number of Contracts  

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
NPFGC     -      insured by National Public Finance Guarantee Corp.

 

26   Annual Report  |     April 30, 2013  |     See accompanying Notes to Financial Statements


Statements of Assets and Liabilities

PIMCO Municipal Income Funds

April 30, 2013

 

        Municipal         California
Municipal
        New York
Municipal
 
     
Assets:                  

Investments, at value (cost-$482,452,700, $391,531,884 and $132,595,046, respectively)

      $550,953,551          $448,265,947          $146,252,758   

Cash

      563,835          516,828          532,520   

Interest receivable

      8,923,883          7,347,327          1,900,102   

Receivable for investments sold

      10,000                   774,443   

Prepaid expenses and other assets

      114,412          44,993          1,912,005   

Total Assets

      560,565,681          456,175,095          151,371,828   
     
Liabilities:                  

Payable for Floating Rate Notes issued

      15,563,277          31,765,500          10,476,876   

Payable for investments purchased

      4,290,058                   739,593   

Dividends payable to common and preferred shareholders

      2,066,161          1,430,559          441,598   

Investment management fees payable

      286,682          224,657          74,135   

Interest payable

      28,030          55,397          21,007   

Accrued expenses and other liabilities

      169,371          301,254          109,935   

Total Liabilities

      22,403,579          33,777,367          11,863,144   
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       $348,162,102          $272,397,728          $92,508,684   
     
Composition of Net Assets Applicable to
Common Shareholders:
                 

Common Shares (no par value):

                 

Paid-in-capital

      $332,607,731          $244,293,983          $97,474,479   

Undistributed net investment income

      4,564,423          11,490,816          2,096,304   

Accumulated net realized loss

      (57,530,743)          (40,418,311)          (20,952,067)   

Net unrealized appreciation

      68,520,691          57,031,240          13,889,968   
Net Assets Applicable to Common Shareholders       $348,162,102          $272,397,728          $92,508,684   

Common Shares Issued and Outstanding

      25,324,015          18,517,531          7,684,606   
Net Asset Value Per Common Share       $13.75          $14.71          $12.04   

 

See accompanying Notes to Financial Statements  |     April 30, 2013  |     Annual Report     27   


Statements of Operations

PIMCO Municipal Income Funds

Year ended April 30, 2013

 

        Municipal         California
Municipal
        New York
Municipal
 
     
Investment Income:                  

Interest

      $28,205,333          $22,431,722          $6,607,926   
     
Expenses:                  

Investment management

      3,466,536          2,695,527          898,151   

Auction agent and commissions

      315,645          243,915          77,577   

Interest

      112,844          243,738          56,260   

Custodian and accounting agent

      108,009          93,862          52,683   

Audit and tax services

      70,050          63,280          44,284   

Shareholder communications

      42,462          28,886          26,732   

Trustees

      40,987          32,232          10,082   

Transfer agent

      37,338          37,068          36,273   

New York Stock Exchange listing

      14,815          14,772          21,175   

Insurance

      13,661          11,379          6,294   

Legal

      8,378          7,290          6,965   

Miscellaneous

      14,033          13,259          12,841   

Total Expenses

      4,244,758          3,485,208          1,249,317   

Less: investment management fees waived

      (43,441)          (33,869)          (11,285)   

custody credits earned on cash balances

      (2,502)          (4,758)          (1,885)   

Net Expenses

      4,198,815          3,446,581          1,236,147   
     
Net Investment Income       24,006,518          18,985,141          5,371,779   
     
Realized and Change in Unrealized Gain (Loss):                  

Net realized gain (loss) on:

                 

Investments

      1,979,685          1,415,386          971,314   

Futures contracts

      (808,634)          (646,907)          (161,727)   

Net change in unrealized appreciation/depreciation of:

                 

Investments

      20,145,208          15,187,906          4,185,306   

Futures contracts

      351,605          281,284          70,321   

Net realized and change in unrealized gain

      21,667,864          16,237,669          5,065,214   
Net Increase in Net Assets Resulting from Investment Operations       45,674,382          35,222,810          10,436,993   
Dividends on Preferred Shares from Net Investment Income       (471,161)          (372,583)          (116,375)   
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations       $45,203,221          $34,850,227          $10,320,618   

 

28   Annual Report  |     April 30, 2013  |     See accompanying Notes to Financial Statements


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Annual Report  |   April 30, 2013     29   


Statements of Changes in Net Assets

Applicable to Common Shareholders

PIMCO Municipal Income Funds

 

        Municipal  
        Year ended
April 30, 2013
        Year ended
April 30, 2012
 
Investment Operations:            

Net investment income

      $24,006,518          $25,313,915   

Net realized gain (loss)

      1,171,051          (3,383,329)   

Net change in unrealized appreciation/depreciation

      20,496,813          58,651,802   

Net increase in net assets resulting from investment operations

      45,674,382          80,582,388   
Dividends on Preferred Shares from Net Investment Income       (471,161)          (438,548)   

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

      45,203,221          80,143,840   
Dividends to Common Shareholders from Net Investment Income       (24,664,665)          (24,597,218)   
   
Common Share Transactions:            

Reinvestment of dividends

      882,792          1,278,223   

Total increase in net assets applicable to common shareholders

      21,421,348          56,824,845   
   
Net Assets Applicable to Common Shareholders:            

Beginning of year

      326,740,754          269,915,909   

End of year*

      $348,162,102          $326,740,754   

*Including undistributed net investment income of:

      $4,564,423          $5,599,470   
   
Common Shares Issued in Reinvestment of Dividends       58,080          98,255   

 

30   Annual Report  |     April 30, 2013  |     See accompanying Notes to Financial Statements


Statements of Changes in Net Assets

Applicable to Common Shareholders (continued)

PIMCO Municipal Income Funds

 

California Municipal         New York Municipal  
Year ended
April 30, 2013
      Year ended
April 30, 2012
        Year ended
April 30, 2013
        Year ended
April 30, 2012
 
                   
$18,985,141       $20,030,549          $5,371,779          $5,719,322   
768,479       (11,194,239)          809,587          (881,234)   
15,469,190       53,279,271          4,255,627          11,620,949   
35,222,810       62,115,581          10,436,993          16,459,037   
(372,583)       (347,737)          (116,375)          (107,654)   
    
34,850,227
      61,767,844          10,320,618          16,351,383   
(17,087,147)       (17,034,147)          (5,248,148)          (5,232,071)   
       
                   
764,404       989,256          310,460          278,520   
18,527,484       45,722,953          5,382,930          11,397,832   
       
                   
253,870,244       208,147,291          87,125,754          75,727,922   
$272,397,728       $253,870,244          $92,508,684          $87,125,754   
$11,490,816       $9,754,846          $2,096,304          $2,307,100   
       
51,253       79,651          25,935          26,484   

 

See accompanying Notes to Financial Statements  |     April 30, 2013  |     Annual Report     31   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

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”) and Pacific Investment Management Company LLC (“PIMCO” or the “Sub-Adviser”) serve as the Funds’ investment manager and sub-adviser, respectively, and are indirect, wholly-owned subsidiaries of Allianz Asset Management of America L.P. (“AAM”). AAM is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has an unlimited amount of no par value per common share 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 U.S. 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 Funds’ financial statements in accordance with accounting principles generally accepted in the United States of America requires the Funds’ management to make estimates and assumptions that affect the reported amounts and disclosures in each Fund’s financial statements. Actual results could differ from those estimates.

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

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures About Offsetting Assets and Liabilities”, as amended in January 2013 by the issued ASU No. 2013-01, 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. Funds’ management is currently evaluating the effect that the guidance may have on the Funds’ financial statements.

 

32   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

1. Organization and Significant Accounting Policies (continued)

 

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

(a) Valuation of Investments

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

The Board of Trustees (the “Board”) has adopted procedures for valuing portfolio securities and other financial derivative instruments in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Investment Manager and Sub-Adviser. The Funds’ Valuation Committee was established by the Board to oversee the implementation of the Funds’ valuation methods and to make fair value determinations on behalf of the Board, as instructed. The Sub-Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Sub-Adviser determines that a valuation method may no

longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee.

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

The prices used by the Funds to value investments may differ from the value that would be realized if the investments 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:

 

n   Level 1 – quoted prices in active markets for identical investments that the Funds have the ability to access
n  

Level 2 – valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities, prepayment speeds, loss severities,

 

Annual Report  |   April 30, 2013     33   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

1. Organization and Significant Accounting Policies (continued)

 

 

credit risks and default rates or other market corroborated inputs

n   Level 3 – valuations based on significant unobservable inputs (including the Sub-Adviser’s or Valuation Committee’s own assumptions and single broker quotes in determining the fair value of investments)

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

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

The valuation techniques used by the Funds to measure fair value during the year ended April 30, 2013 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

The Funds’ policy is to recognize transfers between levels at the end of the reporting period. An investment asset’s or liability’s level

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

(c) Investment Transactions and Investment Income

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

(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. Funds’ management has determined that its evaluation of the positions taken in the tax returns has resulted in

 

34   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

1. Organization and Significant Accounting Policies (continued)

 

no material impact to the Funds’ financial statements at April 30, 2013. The federal income tax returns for the prior three years remain subject to examination by the Internal Revenue Service.

(e) Dividends and Distributions – Common Shares

The Funds declare dividends from net investment income to common shareholders monthly. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions on the ex-dividend date. The amount of dividends from net investment income and distributions from net realized capital gains is determined in accordance with federal income tax regulations, which may differ from GAAP. These “book-tax” differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal income tax treatment; temporary differences do not require reclassification. To the extent dividends and/or distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as dividends and/or distributions to shareholders from return of capital.

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

The Funds invest in RIBs and RITEs (“Inverse Floaters”), whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. In inverse floating rate transactions, the Funds sell a fixed rate municipal bond (“Fixed Rate Bond”) to a broker who places the Fixed Rate Bond in a special purpose trust (“Trust”) from which

floating rate bonds (“Floating Rate Notes”) and Inverse Floaters are issued. The Funds simultaneously or within a short period of time, purchase the Inverse Floaters from the broker. The Inverse Floaters held by the Funds provide the Funds with the right to: (1) cause the holders of the Floating Rate Notes to tender their notes at par, and (2) cause the broker to transfer the Fixed-Rate Bond held by the Trust to the Funds, thereby collapsing the Trust. The Funds account for the transaction described above as a secured borrowing by including the Fixed Rate Bond in their Schedules of Investments, and account for the Floating Rate Notes as a liability under the caption “Payable for Floating Rate Notes issued” in the Funds’ Statements of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date.

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

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

 

Annual Report  |   April 30, 2013     35   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

1. Organization and Significant Accounting Policies (continued)

 

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

(g) Repurchase Agreements

The Funds enter into transactions with their custodian bank or securities brokerage firms whereby they purchase securities under agreements to resell such securities at an agreed upon price and date (“repurchase agreements”). The Funds, through their custodian, take possession of securities collateralizing the repurchase agreement. Such agreements are carried at the contract amount in the financial statements, which is considered to represent fair value. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, is held by the custodian bank for the benefit of the Funds until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Funds require that the market

value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited.

(h) U.S. Government Agencies or Government-Sponsored Enterprises

Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly-owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors not backed by the full faith and credit of the U.S. Government include the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.

(i) Restricted Securities

The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may

 

36   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

1. Organization and Significant Accounting Policies (continued)

 

involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.

(j) Interest Expense

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

(k) Custody Credits on Cash Balances

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

2. Principal Risks

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

Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Funds are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually

making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e. yield) movements.

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

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

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

 

Annual Report  |   April 30, 2013     37   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

2. Principal Risks (continued)

 

industry. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities.

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

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

The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements

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

The considerations and factors surrounding the settlement of certain purchases and sales made on a delayed-delivery basis are governed by Master Securities Forward Transaction Agreements (“Master Forward Agreements”) between the Funds and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral.

The Funds are also a party to Master Repurchase Agreements (“Master Repo Agreements”) with select counterparties. The Master Repo Agreements maintain provisions for initiation, income payments, events of default, and maintenance of collateral.

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

 

38   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

3. Financial Derivative Instruments (continued)

 

“hedges”, and those that do not qualify for such accounting. Although the Funds at times use derivatives for hedging purposes, the Funds reflect derivatives at fair value and recognize changes in fair value through the Funds’ Statement 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 the securities markets or the movements in interest rates and currency values. 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 underlying hedging assets, and possible inability or unwillingness of counterparties to meet the terms of their contracts.

4. Investment Manager/Sub-Adviser

Each Fund has an Investment Management Agreement (each an “Agreement”) with the

Investment Manager. Subject to the supervision of each Fund’s Board, 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 net assets attributable to any Preferred Shares that were outstanding. For the period July 1, 2011 through June 30, 2012, the Investment Manager 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 year ended April 30, 2013, each Fund paid investment management fees at an effective rate of 0.64% 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, not the Funds, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.

 

Annual Report  |   April 30, 2013     39   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

5. Investments in Securities

 

For the year ended April 30, 2013, purchases and sales of investments, other than short-term securities were:

 

     Municipal     California
Municipal
    New York
Municipal
 

Purchases

  $ 58,776,355      $ 51,953,231      $ 23,386,104   

Sales

    51,331,223        56,609,219        24,011,011   

6. Income Tax Information

The tax character of dividends paid was:

 

    Year ended
April 30, 2013
    Year ended
April 30, 2012
 
     Ordinary
Income
    Tax
Exempt
Income
    Ordinary
Income
    Tax
Exempt
Income
 

Municipal

  $ 363,616      $ 24,772,210      $ 445,895      $ 24,589,871   

California Municipal

    222,475        17,237,255        243,630        17,138,254   

New York Municipal

    21,394        5,343,129        27,309        5,312,416   

At April 30, 2013, the components of distributable earnings were:

 

    Tax
Exempt
Income
    Capital loss
Carryforwards(1)
    Post-October Capital loss(2)  
         Short-Term     Long-Term  

Municipal

  $ 4,474,903      $ 57,992,613      $ 13,528      $   

California Municipal

    11,279,072        38,914,997               108,213   

New York Municipal

    2,396,002        20,874,269                 

 

(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, 2012 through April 30, 2013 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 Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result 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, 2013, capital loss carryforward amounts were:

 

    Year of Expiration         No Expiration(3)  
    2014     2015     2016     2017     2018         Short-Term     Long-Term  

Municipal

    1,105,730        459,581        3,577,024        890,721        49,231,992          2,727,565          

California Municipal

    1,951,329                             23,866,648          11,934,075        1,162,945   

New York Municipal

    243,785                      3,099,084        16,947,180          584,220          

 

(3)   Carryforward amounts are subject to the provisions of the Regulated Investment Company Modernization Act of 2010.  

 

40   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

6. Income Tax Information (continued)

 

For the year ended April 30, 2013, PIMCO Municipal Income utilized post-enactment capital loss carryforwards of $1,536,184 of which $1,179,188 was short-term and $356,996 was long-term and New York Municipal Income utilized post-enactment of $879,908 which was short-term.

For the year ended April 30, 2013, the Funds had capital loss carryforwards which were expired as follows:

 

      Expired  

Municipal

     12,156,912   

California Municipal

     6,552,094   

New York Municipal

     4,622,781   

 

For the year ended April 30, 2013, permanent “book-tax” adjustments were:

 

     Undistributed
Net Investment
Income
    Accumulated
Net Realized
Gain(Loss)
    Paid-in Capital in
Excess of Par
 

Municipal (a)(b)

  $ 4,741      $ 12,152,171      $ (12,156,912

California Municipal (a)(b)

    (1,185     6,553,279        (6,552,094

New York Municipal (a)(b)

    81,646        4,541,135        (4,622,781

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.

At April 30, 2013, the aggregate cost basis and the net unrealized appreciation of investments for federal income tax purposes were:

 

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

Municipal

  $ 466,312,046      $ 73,563,249      $ 4,477,638      $ 69,085,611   

California Municipal

    360,456,263        55,878,523        30,637        55,847,886   

New York Municipal

    124,094,243        14,151,622        639,152        13,512,470   

Differences between book and tax cost basis were 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 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 of $25,000 per share plus any accumulated, unpaid dividends.

 

Annual Report  |   April 30, 2013     41   


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

7. Auction-Rate Preferred Shares (continued)

 

New York Municipal has 1,880 shares of Preferred Shares Series A outstanding, with a liquidation preference 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 failed auctions). Distributions of net realized capital gains, if any, are paid annually.

For the year ended April 30, 2013, the annualized dividend rates ranged from:

 

    High   Low     At
April 30, 2013
 
Municipal:                   

Series A

  0.377%     0.131     0.361

Series B

  0.381%     0.131     0.377

Series C

  0.381%     0.131     0.377

Series D

  0.381%     0.131     0.377

Series E

  0.381%     0.144     0.361
     
California Municipal:                   

Series A

  0.377%     0.131     0.361

Series B

  0.381%     0.131     0.377

Series C

  0.381%     0.144     0.361
     
New York Municipal:                   

Series A

  0.381%     0.131     0.377

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 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 S&P 7-day Index divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal) multiplied by 110%

 

42   April 30, 2013  |   Annual Report


Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2013

 

7. Auction-Rate Preferred Shares (continued)

 

(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.

In the Fall of 2012, S&P Evaluation Services announced that it would discontinue providing the S&P Weekly High Grade Municipal Bond Index (formerly, the Kenny S&P 30-Day High Grade Municipal Bond Index) (the “Prior Index”)

effective January 1, 2013. The Funds’ Boards approved the use of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index in replacement of the Prior Index to calculate ARPS dividend rates on and after January 1, 2013, as well as corresponding amendments to the Funds’ bylaws.

8. Transfer Agent Change

Effective September 17, 2012 (the “Effective Date”), American Stock Transfer & Trust Company, LLC (“AST”) assumed responsibility as the Funds’ transfer agent. The amended Dividend Reinvestment Plan (the “Plan”) and AST’s role as transfer agent for Participants under the Plan commenced as of the Effective Date.

9. Subsequent Events

In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

On May 1, 2013, the following dividends were declared to common shareholders payable June 3, 2013 to shareholders of record on May 13, 2013.

 

Municipal

     $0.08125 per common share

California Municipal

     $0.077 per common share

New York Municipal

     $0.057 per common share

On June 3, 2013, the following dividends were declared to common shareholders payable July 1, 2013 to shareholders of record on June 13, 2013.

 

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 subsequent events that require recognition or disclosure.

 

Annual Report  |   April 30, 2013     43   


Financial Highlights

PIMCO Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2013         2012         2011         2010         2009  
Net asset value, beginning of year       $12.93          $10.72          $11.76          $9.38          $12.96   
         

Investment Operations:

                             
Net investment income       0.95          1.01          1.07          1.18          1.13   
Net realized and change in unrealized gain (loss)       0.87          2.20          (1.10       2.22          (3.53
Total from investment operations       1.82          3.21          (0.03       3.40          (2.40
         
Dividends on Preferred Shares from Net Investment Income       (0.02       (0.02       (0.03       (0.04       (0.20
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       1.80          3.19          (0.06       3.36          (2.60
         
Dividends to Common Shareholders from Net Investment Income       (0.98       (0.98       (0.98       (0.98       (0.98
Net asset value, end of year       $13.75          $12.93          $10.72          $11.76          $9.38   
Market price, end of year       $16.05          $15.28          $12.92          $13.72          $11.40   

Total Investment Return (1)

      11.96       27.20       1.54       30.34       (24.58 )% 

Ratios/Supplemental Data:

  

                       
Net assets, applicable to common shareholders, end of year (000s)       $348,162          $326,741          $269,916          $294,457          $233,507   
Ratio of expenses to average net assets, including interest expense (2)(3)(4)       1.22 %(5)        1.28 %(5)        1.44       1.46 %(5)        1.64 %(5) 
Ratio of expenses to average net assets, excluding interest expense (2)(3)       1.19 %(5)        1.22 %(5)        1.34       1.34 %(5)        1.42 %(5) 
Ratio of net investment income to average net assets (2)       6.99 %(5)        8.42 %(5)        9.43       10.77 %(5)        10.65 %(5) 
Preferred shares asset coverage per share       $70,809          $67,990          $60,514          $63,743          $55,722   
Portfolio turnover rate       9       18       15       11       60

 

(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares.  

 

(2)   Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.  

 

(3)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank (See note 1(k) in Notes to Financial Statements).  

 

(4)   Interest expense relates to the liability for Floating Rate Notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions.  

 

(5)   During the years indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.01%, 0.07%, 0.01% and 0.10% for the years ended April 30, 2013, April 30, 2012, April 30, 2010 and April 30, 2009, respectively.  

 

44   Annual Report  |     April 30, 2013  |     See accompanying Notes to Financial Statements


Financial Highlights

PIMCO California Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2013         2012         2011         2010         2009  
Net asset value, beginning of year       $13.75          $11.32          $12.84          $10.61          $13.62   
         

Investment Operations:

                             
Net investment income       1.02          1.08          1.12          1.21          1.08   
Net realized and change in unrealized gain (loss)       0.88          2.29          (1.69       1.98          (2.96
Total from investment operations       1.90          3.37          (0.57       3.19          (1.88
         
Dividends on Preferred Shares from Net Investment Income       (0.02       (0.02       (0.03       (0.04       (0.21
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       1.88          3.35          (0.60       3.15          (2.09
         
Dividends to Common Shareholders from Net Investment Income       (0.92       (0.92       (0.92       (0.92       (0.92
Net asset value, end of year       $14.71          $13.75          $11.32          $12.84          $10.61   
Market price, end of year       $15.33          $14.83          $11.99          $13.29          $12.18   

Total Investment Return (1)

      9.96       32.94       (2.79 )%        17.72       (16.72 )% 

Ratios/Supplemental Data:

                             
Net assets, applicable to common shareholders, end of year (000s)       $272,398          $253,870          $208,147          $234,792          $192,849   
Ratio of expenses to average net assets, including interest expense (2)(3)(4)       1.30 %(5)        1.36 %(5)        1.48       1.49 %(5)        1.66 %(5) 
Ratio of expenses to average net assets, excluding interest expense (2)(3)       1.21 %(5)        1.25 %(5)        1.34       1.34 %(5)        1.39 %(5) 
Ratio of net investment income to average net assets (2)       7.17 %(5)        8.63 %(5)        9.21       10.15 %(5)        9.42 %(5) 
Preferred shares asset coverage per share       $70,398          $67,310          $59,689          $64,130          $57,140   
Portfolio turnover rate       12       9       19       8       42

 

(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares.  

 

(2)   Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.  

 

(3)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank (See note 1(k) in Notes to Financial Statements).  

 

(4)   Interest expense relates to the liability for Floating Rate Notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions.  

 

(5)   During the years indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.01%, 0.07%, 0.01% and 0.10% for the years ended April 30, 2013, April 30, 2012, April 30, 2010 and April 30, 2009, respectively.  

 

See accompanying Notes to Financial Statements  |     April 30, 2013  |     Annual Report     45   


Financial Highlights

PIMCO New York Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2013         2012         2011         2010         2009  

Net asset value, beginning of year

      $11.38          $9.92          $10.67          $9.19          $12.70   
         

Investment Operations:

                             

Net investment income

      0.70          0.74          0.80          0.88          0.87   
Net realized and change in unrealized gain (loss)       0.66          1.41          (0.84       1.31          (3.50

Total from investment operations

      1.36          2.15          (0.04       2.19          (2.63
         
Dividends on Preferred Shares from Net Investment Income       (0.02       (0.01       (0.03       (0.03       (0.20
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       1.34          2.14          (0.07       2.16          (2.83
         
Dividends to Common Shareholders from Net Investment Income       (0.68       (0.68       (0.68       (0.68       (0.68

Net asset value, end of year

      $12.04          $11.38          $9.92          $10.67          $9.19   

Market price, end of year

      $12.52          $11.73          $9.89          $11.18          $9.90   

Total Investment Return (1)

      12.96       26.36       (5.57 )%        20.76       (18.80 )% 

Ratios/Supplemental Data:

                             
Net assets, applicable to common shareholders, end of year (000s)       $92,509          $87,126          $75,728          $81,074          $69,482   
Ratio of expenses to average net assets, including interest expense (2)(3)(4)       1.36 %(5)        1.37 %(5)        1.51       1.52 %(5)        1.86 %(5) 
Ratio of expenses to average net assets, excluding interest expense (2)(3)       1.30 %(5)        1.31 %(5)