PIMCO California Municipal Income Fund
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-10379

 

 

PIMCO California Municipal Income Fund

(Exact name of registrant as specified in charter)

 

 

 

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

 

 

Lawrence G. Altadonna — 1633 Broadway,

New York, NY 10019

(Name and address of agent for service)

 

 

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

Date of fiscal year end: April 30, 2014

Date of reporting period: April 30, 2014

 

 

 


Table of Contents

Item 1 Report to shareholders

 

PIMCO Municipal Income Fund

PIMCO California Municipal Income Fund

PIMCO New York Municipal Income Fund

 

Annual Report

April 30, 2014

 

LOGO

 

LOGO


Table of Contents

Table of Contents

 

 

2 – 3   Letter from Chairman of the Board & President
4 – 5   Fund Insights
6 – 8   Performance & Statistics
9 – 26   Schedules of Investments
27   Statements of Assets and Liabilities
28   Statements of Operations
30 – 31   Statements of Changes in Net Assets
32 – 45   Notes to Financial Statements
46 – 48   Financial Highlights
49   Report of Independent Registered Public Accounting Firm
50   Tax Information
51   Annual Shareholder Meeting Results/Corporate Changes
52 – 58   Matters Relating to the Trustees’ Consideration of the Investment Management Agreement
59 – 60   Privacy Policy/Proxy Voting Policies & Procedures
61 – 62   Dividend Reinvestment Plan
63 – 64   Board of Trustees
65   Fund Officers


Table of Contents

Letter from Chairman of the Board &

President

 

LOGO

Hans W. Kertess

Chairman

 

LOGO

Julian Sluyters

President & CEO

 

Dear Shareholder:

After three years of generally moderate growth, the US economy contracted toward the end of the 12-month fiscal reporting period ended April 30, 2014. The US bond market was volatile and ultimately posted a modest decline. In contrast, the overall municipal bond market overcame a weak start and generated a small positive return during the reporting period.

 

n   PIMCO Municipal Income Fund returned -0.89% on net asset value (“NAV”) and -8.45% on market price.

 

n   PIMCO California Municipal Income Fund returned 0.43% on NAV and 0.61% on market price.

 

n   PIMCO New York Municipal Income Fund returned -0.83% on NAV and -3.21% on market price.

12-Months in Review

After several years of positive growth, severe winter weather in parts of the country appeared to be a headwind for the US economy as the reporting period progressed. Gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at an annual pace of 2.5% during the second quarter of 2013.

Annual GDP growth then rose 4.1% during the third quarter, the best reading since the fourth quarter of 2011. Fourth quarter 2013 GDP growth expanded at a 2.6% annual pace. According to the US Commerce Department’s second estimate, GDP contracted at an annual pace of 1.0% during the first quarter of 2014.

The Federal Reserve (the “Fed”) maintained an accommodative monetary policy during the reporting period. The bond markets reacted to ongoing announcements and actions related to the reduction of the Fed’s monthly asset purchase program, which resulted in wide variations in bond yields over the last 12 months. The bond markets also scrutinized Fed statements related to when interest rates would begin to rise. In April, the Fed repeated that it would not raise rates in the near future, saying that it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”

 

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Outlook

The US economy has been resilient and, based on recent data, appears to have overcome the headwinds associated with higher taxes, rising interest rates and severe winter weather. We continue to expect US economic growth will be above-trend in 2014 due, in part, to the fact that fiscal policy will be less of a drag than it was last year. While we are prepared for the Fed to start raising benchmark interest rates in 2015, we think policymakers will remain behind the curve on

 

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monetary normalization. Several factors support this view, including: the modest pace of the labor recovery, the lack of inflation pressure, the need to support the deleveraging process, the risk of a bond market crash if rates were to normalize too quickly, and constrained fiscal policy and political pressure.

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   Julian Sluyters
Chairman of the Board of Trustees   President & Chief Executive Officer

 

April 30, 2014  |   Annual Report     3   


Table of Contents

Fund Insights

PIMCO Municipal Income Fund

PIMCO California Municipal Income Fund

PIMCO New York Municipal Income Fund

April 30, 2014 (unaudited)

 

For the 12-months ended April 30, 2014, PIMCO Municipal Income Fund (“Municipal”) returned -0.89% on net asset value (“NAV”) and -8.45% on market price.

For the 12-months ended April 30, 2014, PIMCO California Municipal Income Fund (“California Municipal”) returned 0.43% on NAV and 0.61% on market price.

For the 12-months ended April 30, 2014, PIMCO New York Municipal Income Fund (“New York Municipal”) returned -0.83% on NAV and -3.21% on market price.

The municipal bond market overcame a challenging start and generated a modest gain during the 12-month reporting period ended April 30, 2014. The overall municipal market, as measured by the Barclays Municipal Index (the “Index”), posted negative returns during the first four months of the reporting period. Negatively impacting the municipal market were rising interest rates, as well as generally weak demand given concerns over the city of Detroit’s bankruptcy filing and credit issues in Puerto Rico. However, the municipal bond market then strengthened and generated positive returns during six of the last eight months of the period. This turnaround was due to several factors, including improving fundamentals, attractive valuations and generally falling interest rates. In addition, investor demand improved, while new municipal supply fell sharply over the first four months of 2014. All told, the Index gained 0.50% during the 12-month reporting period. In comparison, the overall taxable fixed income market, as measured by the Barclays US Aggregate Index, declined 0.26%.

Portfolio Overview

An overweight duration relative to the Index detracted from Municipal’s performance as municipal yields moved higher during the 12-months ended April 30, 2014. Municipal’s overweighting to the Revenue-Backed sector hindered results as it lagged the Index. Municipal’s underweighting to the Housing Education sectors were negative for performance given their outperformance versus the Index. Municipal’s underweighting to the Special Tax and Electric Utility sectors were beneficial given their underperformance versus the Index. Municipal’s overweighting to the Tobacco sector contributed to results as it outperformed the Index.

An overweight duration relative to the Index detracted from California Municipal’s performance as municipal yields moved higher during the 12-months ended April 30, 2014. California Municipal’s overweighting to the Revenue-Backed sector hindered results as it lagged the Index. California Municipal’s underweighting of the Education and Transportation sectors were not beneficial as they outperformed the Index. California Municipal’s underweighting of the Electric Utility sector was additive for results given its underperformance versus the Index. California Municipal’s overweighting of the Health Care sector was rewarded as it outperformed the Index.

An overweight duration relative to the Index detracted from New York Municipal’s performance as municipal yields moved higher during the 12-months ended April 30, 2014. New York Municipal’s overweighting to the

 

 

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Revenue-Backed sector hindered results as it lagged the Index. New York Municipal’s underweighting to the Transportation and Water and Sewer sectors were not rewarded as they outperformed the Index. New York Municipal’s overweighting of the Health Care

sector was rewarded as it outperformed the Index. In addition, New York Municipal’s overweighting to the Industrial Revenue and Education sectors enhanced its results as they both outperformed the Index.

 

 

April 30, 2014  |   Annual Report     5   


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Performance & Statistics

PIMCO Municipal Income Fund

April 30, 2014 (unaudited)

 

Total Return(1):   Market Price      NAV  

1 Year

    -8.45%         -0.89%   

5 Year

    11.53%         15.11%   

10 Year

    7.40%         6.83%   

Commencement of Operations (6/29/01) to 4/30/14

    6.45%         6.72%   

 

Market Price/NAV Performance:    

Commencement of Operations (6/29/01) to 4/30/14

 

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Market Price/NAV:      

Market Price

    $13.58   

NAV

    $12.57   

Premium to NAV

    8.04%   

Market Price Yield(2)

    7.18%   

Leverage Ratio(3)

    38.88%   

Moody’s Rating

(as a % of total investments)

 

LOGO

 

 

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Performance & Statistics

PIMCO California Municipal Income Fund

April 30, 2014 (unaudited)

 

Total Return(1):   Market Price      NAV  

1 Year

    0.61%         0.43%   

5 Year

    10.97%         13.27%   

10 Year

    7.99%         7.13%   

Commencement of Operations (6/29/01) to 4/30/14

    6.59%         6.74%   

 

Market Price/NAV Performance:    

Commencement of Operations (6/29/01) to 4/30/14

 

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Market Price/NAV:      

Market Price

    $14.38   

NAV

    $13.77   

Premium to NAV

    4.43%   

Market Price Yield(2)

    6.43%   

Leverage Ratio(3)

    41.54%   

Moody’s Rating

(as a % of total investments)

 

LOGO

 

 

April 30, 2014  |   Annual Report     7   


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Performance & Statistics

PIMCO New York Municipal Income Fund

April 30, 2014 (unaudited)

 

Total Return(1):   Market Price      NAV  

1 Year

    -3.21%         -0.83%   

5 Year

    9.52%         10.90%   

10 Year

    5.24%         4.55%   

Commencement of Operations (6/29/01) to 4/30/14

    4.19%         4.48%   

 

Market Price/NAV Performance:    

Commencement of Operations (6/29/01) to 4/30/14

 

LOGO

Market Price/NAV:      

Market Price

    $11.36   

NAV

    $11.20   

Premium to NAV

    1.43%   

Market Price Yield(2)

    6.02%   

Leverage Ratio(3)

    40.00%   

Moody’s Rating

(as a % of total investments)

 

LOGO

 

 

(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all 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. Total return for a period of more than one year represents the average annual total return.

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

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

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at April 30, 2014.

(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).

 

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Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014

 

Principal
Amount
(000s)
              Value  
  Municipal Bonds & Notes – 95.6%            
  Alabama – 1.8%      
  Huntsville-Redstone Village Special Care Facs. Financing Auth. Rev.,
Redstone Village Project,
     
  $250      5.50%, 1/1/28       $248,795   
  885      5.50%, 1/1/43       811,200   
  15,000      Jefferson Cnty. Sewer Rev., zero coupon, 10/1/50, Ser. F (k)       8,163,900   
                9,223,895   
  Alaska – 0.8%      
  3,280      Borough of Matanuska-Susitna Rev., Goose Creek Correctional Center,
6.00%, 9/1/32 (AGC)
      3,772,722   
  900      Industrial Dev. & Export Auth. Rev., Boys & Girls Home, 6.00%, 12/1/36 (b)(e)       405,000   
                4,177,722   
  Arizona – 2.4%      
  Health Facs. Auth. Rev.,      
  2,050      Banner Health, 5.50%, 1/1/38, Ser. D       2,180,749   
  2,750      Beatitudes Campus Project, 5.20%, 10/1/37       2,440,377   
  1,500      Maricopa Cnty. Pollution Control Corp. Rev., Southern California Edison Co., 5.00%, 6/1/35, Ser. A       1,585,905   
  750      Pima Cnty. Industrial Dev. Auth. Rev., Tucson Electric Power Co., 5.25%, 10/1/40, Ser. A       777,593   
  5,000      Salt River Project Agricultural Improvement & Power Dist. Rev., 5.00%, 1/1/39, Ser. A (j)       5,357,150   
                12,341,774   
  Arkansas – 0.4%      
  5,500      Dev. Finance Auth. Rev., Arkansas Cancer Research Center Project, zero coupon, 7/1/36 (AMBAC)       1,854,820   
  California – 16.8%      
  Bay Area Toll Auth. Rev., San Francisco Bay Area,      
  2,875      5.00%, 10/1/34       3,093,126   
  3,255      5.00%, 10/1/42       3,440,991   
  10,000      5.25%, 4/1/53, Ser. S-4       10,658,200   
  3,000      Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B       3,416,580   
  7,500      Golden State Tobacco Securitization Corp. Rev., 5.75%, 6/1/47, Ser. A-1       6,191,025   
  Health Facs. Financing Auth. Rev.,      
  2,000      Catholic Healthcare West, 6.00%, 7/1/39, Ser. A       2,222,920   
  3,000      Sutter Health, 5.00%, 8/15/52, Ser. A       3,192,150   
  1,500      Sutter Health, 6.00%, 8/15/42, Ser. B       1,721,445   
  5,300      Los Angeles Community College Dist., GO, 5.00%, 8/1/32, Ser. A (FGIC-NPFGC)       5,834,664   
  2,000      Los Angeles Unified School Dist., GO, 5.00%, 7/1/30, Ser. E (AMBAC)       2,098,080   
  2,000      M-S-R Energy Auth. Rev., 6.125%, 11/1/29, Ser. C       2,458,380   
  4,175      Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)       4,443,202   
  1,390      Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B       1,571,840   
  5,000      Orange Cnty. Airport Rev., 5.25%, 7/1/39, Ser. A       5,473,450   
  1,600      San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A       1,693,424   
  State, GO,      
  700      5.00%, 11/1/32       764,491   
  1,200      5.00%, 6/1/37       1,278,996   
  2,300      5.125%, 8/1/36       2,506,471   

 

April 30, 2014  |   Annual Report     9   


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  California (continued)      
  $1,250      5.25%, 3/1/38       $1,353,150   
  1,900      5.25%, 11/1/40       2,111,299   
  500      5.50%, 3/1/40       562,035   
  3,200      6.00%, 4/1/38       3,757,568   
  Statewide Communities Dev. Auth. Rev.,      
  625      California Baptist Univ., 6.50%, 11/1/21       726,131   
  845      Catholic Healthcare West, 5.50%, 7/1/31, Ser. E       926,821   
  2,310      Methodist Hospital Project, 6.625%, 8/1/29 (FHA)       2,735,155   
  8,485      Methodist Hospital Project, 6.75%, 2/1/38 (FHA)       10,002,882   
  1,000      Trinity Health, 5.00%, 12/1/41       1,048,760   
  2,000      Whittier Union High School Dist., GO, zero coupon, 8/1/25       1,182,380   
                86,465,616   
  Colorado – 0.6%      
  450      Denver Health & Hospital Auth. Rev., 5.625%, 12/1/40       476,937   
  500      Public Auth. for Colorado Energy Rev., 6.50%, 11/15/38       650,280   
  400      Regional Transportation Dist., CP, 5.375%, 6/1/31, Ser. A       434,996   
  1,500      Univ. of Colorado Rev., 5.375%, 6/1/38, Ser. A       1,677,660   
                3,239,873   
  Connecticut – 1.5%      
  State Health & Educational Fac. Auth. Rev.,      
  5,000      Hartford Healthcare, 5.00%, 7/1/41, Ser. A       5,207,100   
  2,500      Stamford Hospital, 5.00%, 7/1/42, Ser. J       2,605,200   
                7,812,300   
  District of Columbia – 0.9%      
  2,500      Dist. of Columbia Rev., Brookings Institution, 5.75%, 10/1/39       2,712,725   
  2,070      Tobacco Settlement Financing Corp. Rev., 6.25%, 5/15/24       2,073,478   
                4,786,203   
  Florida – 2.1%      
  4,000      Broward Cnty. Water & Sewer Utility Rev., 5.25%, 10/1/34, Ser. A (j)       4,470,240   
  300      Dev. Finance Corp. Rev., Renaissance Charter School, 6.50%, 6/15/21, Ser. A       314,562   
  500      Lee Cnty. Industrial Dev. Auth. Rev., Lee Community Charter Foundation, 5.375%, 6/15/37, Ser. A       498,985   
  1,250      Miami-Dade Cnty. School Board Foundation, Inc., CP, 5.375%, 2/1/34, Ser. A (AGC)       1,346,362   
  3,900      State Board of Education, GO, 5.00%, 6/1/38, Ser. D (j)       4,316,832   
                10,946,981   
  Georgia – 0.4%      
  2,300      Medical Center Hospital Auth. Rev., Spring Harbor Green Island Project, 5.25%, 7/1/37       2,263,499   
  Illinois – 1.6%      
  Finance Auth. Rev.,      
  400      OSF Healthcare System, 7.125%, 11/15/37, Ser. A       472,988   
  5,000      Univ. of Chicago, 5.50%, 7/1/37, Ser. B (j)       5,617,800   
  1,900      Springfield Electric Rev., 5.00%, 3/1/36       1,914,972   
                8,005,760   
  Indiana – 1.6%      
  Finance Auth. Rev.,      
  1,500      Duke Energy Indiana, Inc., 6.00%, 8/1/39, Ser. B       1,641,900   
  3,000      Ohio Valley Electric Corp., 5.00%, 6/1/32, Ser. A       3,021,690   

 

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Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Indiana (continued)      
  $1,000      Municipal Power Agcy. Rev., 6.00%, 1/1/39, Ser. B       $1,123,850   
  1,900      Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 7.50%, 9/1/22       2,287,562   
                8,075,002   
  Iowa – 1.2%      
  Finance Auth. Rev.,      
  532      Deerfield Retirement Community, Inc., 2.00%, 5/15/56, Ser. B, PIK       5,320   
  3,500      Edgewater LLC Project, 6.75%, 11/15/37       3,624,880   
  1,500      Edgewater LLC Project, 6.75%, 11/15/42       1,549,170   
  1,000      Fertilizer Company Project, 5.25%, 12/1/25       1,011,210   
                6,190,580   
  Kansas – 0.4%      
  1,000      Dev. Finance Auth. Rev., Adventist Health, 5.75%, 11/15/38       1,104,250   
  871      Lenexa City, Tax Allocation, Center East Project, 6.00%, 4/1/27 (e)       261,405   
  650      Manhattan Rev., Meadowlark Hills Retirement, 5.125%, 5/15/42, Ser. B       602,264   
                1,967,919   
  Kentucky – 0.2%      
  1,000      Economic Dev. Finance Auth. Rev., Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A       1,083,160   
  Louisiana – 1.0%      
  Local Gov’t Environmental Facs. & Community Dev. Auth Rev.,      
  1,680      Capital Projects & Equipment Acquisition, 6.55%, 9/1/25 (ACA) (b)       1,825,706   
  400      Westlake Chemical Corp., 6.50%, 11/1/35, Ser. A-2       443,164   
  750      Woman’s Hospital Foundation, 5.875%, 10/1/40, Ser. A       836,813   
  2,000      Public Facs. Auth. Rev., Ochsner Clinic Foundation Project, 6.50%, 5/15/37       2,261,820   
                5,367,503   
  Maryland – 0.4%      
  1,500      Economic Dev. Corp. Rev., 5.75%, 6/1/35, Ser. B       1,555,125   
  650      Health & Higher Educational Facs. Auth. Rev., Charlestown Community, 6.25%, 1/1/41       697,366   
                2,252,491   
  Massachusetts – 0.5%      
  Dev. Finance Agcy. Rev.,      
  750      Foxborough Regional Charter School, 7.00%, 7/1/42, Ser. A       829,868   
  103      Linden Ponds, Inc. Fac., zero coupon, 11/15/56, Ser. B (b)       697   
  388      Linden Ponds, Inc. Fac., 6.25%, 11/15/39, Ser. A-1       331,503   
  1,500      State College Building Auth. Rev., 5.50%, 5/1/39, Ser. A       1,661,565   
                2,823,633   
  Michigan – 0.6%      
  1,500      Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 8.25%, 9/1/39       1,828,470   
  1,500      Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A       1,212,015   
                3,040,485   
  Minnesota – 0.4%      
  95      Agricultural & Economic Dev. Board Rev., Health Care Systems, 6.375%, 11/15/29, Ser. A       95,358   
  1,500      St. Louis Park Rev., Nicollett Health Services, 5.75%, 7/1/39       1,616,040   
  500      Washington Cnty. Housing & Redev. Auth. Rev., Birchwood & Woodbury Projects, 5.625%, 6/1/37, Ser. A       500,325   
                2,211,723   

 

April 30, 2014  |   Annual Report     11   


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Missouri – 0.3%      
  $1,000      Joplin Industrial Dev. Auth. Rev., Christian Homes, Inc., 5.75%, 5/15/26, Ser. F       $1,049,720   
  370      Lee’s Summit, Tax Allocation, Summit Fair Project, 5.625%, 10/1/23       383,675   
                1,433,395   
  Nevada – 4.0%      
  Clark Cnty., GO,      
  5,000      4.75%, 6/1/30 (AGM)       5,198,950   
  5,230      4.75%, 11/1/35 (FGIC-NPFGC) (j)       5,341,399   
  9,755      Washoe Cnty., Water & Sewer, GO, 5.00%, 1/1/35 (NPFGC)       10,062,673   
                20,603,022   
  New Jersey – 9.1%      
  16,550      Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project, 5.75%, 4/1/31       17,719,092   
  2,000      Economic Dev. Auth. Rev., School Facs. Construction, 5.50%, 12/15/34, Ser. Z (AGC)       2,195,680   
        Health Care Facs. Financing Auth. Rev.,          
  500      AHS Hospital Corp., 6.00%, 7/1/37       573,720   
  2,000      Robert Wood Johnson Univ. Hospital, 5.50%, 7/1/43, Ser. A       2,176,780   
  2,000      State Turnpike Auth. Rev., 5.25%, 1/1/40, Ser. E       2,153,520   
  Tobacco Settlement Financing Corp. Rev., Ser. 1-A,      
  6,600      4.75%, 6/1/34       5,190,504   
  12,000      5.00%, 6/1/41       9,503,520   
  7,000      Transportation Trust Fund Auth. Rev., 5.00%, 6/15/42, Ser. B       7,323,330   
                46,836,146   
  New Mexico – 1.5%      
  1,000      Farmington Pollution Control Rev., 5.90%, 6/1/40, Ser. D       1,070,890   
  6,400      Hospital Equipment Loan Council Rev., Presbyterian Healthcare, 5.00%, 8/1/39       6,635,072   
                7,705,962   
  New York – 12.0%      
  15,500      Hudson Yards Infrastructure Corp. Rev., 5.25%, 2/15/47, Ser. A       16,525,635   
  Liberty Dev. Corp. Rev., Goldman Sachs Headquarters,      
  7,500      5.25%, 10/1/35       8,569,950   
  3,000      5.50%, 10/1/37       3,513,060   
  3,000      Metropolitan Transportation Auth. Rev., 5.00%, 11/15/36, Ser. D       3,187,290   
  4,200      Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A       2,148,888   
  3,000      New York City Water & Sewer System Rev., Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1       3,240,900   
  New York Liberty Dev. Corp. Rev.,      
  10,000      1 World Trade Center Project, 5.00%, 12/15/41       10,576,200   
  10,000      4 World Trade Center Project, 5.00%, 11/15/44       10,518,200   
  3,500      State Dormitory Auth. Rev., The New School, 5.50%, 7/1/40       3,783,745   
                62,063,868   
  Ohio – 3.1%      
  10,000      Buckeye Tobacco Settlement Financing Auth. Rev., 6.50%, 6/1/47, Ser. A-2       8,815,600   
  1,000      Hamilton Cnty. Healthcare Rev., Christ Hospital Project, 5.00%, 6/1/42       1,036,240   
  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)       522,785   
  500      Montgomery Cnty. Rev., Miami Valley Hospital, 6.25%, 11/15/39, Ser. A
(Pre-refunded @ $100, 11/15/14) (c)
      516,085   
  5,000      State Turnpike Commission Rev., 5.00%, 2/15/48, Ser. A-1       5,305,900   
                16,196,610   

 

12   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Oregon – 0.6%      
  $2,000      Oregon Health & Science Univ. Rev., 5.75%, 7/1/39, Ser. A       $2,230,460   
  600      State Department of Administrative Services, CP, 5.25%, 5/1/39, Ser. A       639,756   
                2,870,216   
  Pennsylvania – 4.9%      
  5,000      Geisinger Auth. Rev., 5.25%, 6/1/39, Ser. A       5,326,700   
  2,000      Harrisburg Auth. Rev., Harrisburg Univ. of Science, 6.00%, 9/1/36, Ser. B (e)       906,240   
        Higher Educational Facs. Auth. Rev.,          
  500      Edinboro Univ. Foundation, 6.00%, 7/1/43       506,615   
  350      Thomas Jefferson Univ., 5.00%, 3/1/40       366,335   
  Lancaster Cnty. Hospital Auth. Rev., Brethren Village Project, Ser. A,      
  750      6.25%, 7/1/26       788,377   
  85      6.375%, 7/1/30       88,668   
  1,100      Luzerne Cnty. Industrial Dev. Auth. Rev., Pennsylvania American Water Co., 5.50%, 12/1/39       1,205,226   
  7,000      Philadelphia, GO, 5.25%, 12/15/32, Ser. A (AGM)       7,465,010   
  Philadelphia Hospitals & Higher Education Facs. Auth. Rev., Temple Univ. Health System, Ser. A,      
  5,000      5.625%, 7/1/36       4,928,000   
  1,000      5.625%, 7/1/42       961,040   
  500      Philadelphia Water & Wastewater Rev., 5.25%, 1/1/36, Ser. A       532,400   
  2,000      Turnpike Commission Rev., 5.125%, 12/1/40, Ser. D       2,112,360   
                25,186,971   
  Rhode Island – 4.6%      
  23,800      Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A       23,802,856   
  South Carolina – 2.7%      
  450      Jobs-Economic Dev. Auth. Rev., Lutheran Homes, 5.50%, 5/1/28       453,442   
  2,200      State Ports Auth. Rev., 5.25%, 7/1/40       2,356,046   
  State Public Service Auth. Rev.,      
  5,000      5.50%, 12/1/53, Ser. E       5,520,300   
  5,000      Sanatee Cooper, 5.125%, 12/1/43, Ser. B       5,398,150   
                13,727,938   
  Tennessee – 2.2%      
  940      Memphis Health Educational & Housing Fac. Board Rev., Wesley Housing Corp. Project, 6.95%, 1/1/20 (a)(b)(d)(e)(f)(l) (acquisition cost-$932,489; purchased 6/29/01)       234,684   
        Tennessee Energy Acquisition Corp. Rev.,          
  5,000      5.00%, 2/1/27, Ser. C       5,474,000   
  5,000      5.25%, 9/1/24, Ser. A       5,614,000   
                11,322,684   
  Texas – 9.9%      
  1,200      Dallas Rev., Dallas Civic Center, 5.25%, 8/15/38 (AGC)       1,281,252   
  5,500      Grand Parkway Transportation Corp. Rev., 5.00%, 4/1/53, Ser. B       5,808,110   
  Municipal Gas Acquisition & Supply Corp. I Rev.,      
  3,500      5.25%, 12/15/23, Ser. A       3,962,525   
  6,500      6.25%, 12/15/26, Ser. D       7,865,130   
  North Harris Cnty. Regional Water Auth. Rev.,      
  4,200      5.25%, 12/15/33       4,519,578   
  4,200      5.50%, 12/15/38       4,536,084   

 

April 30, 2014  |   Annual Report     13   


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Texas (continued)      
  North Texas Tollway Auth. Rev.,      
  $2,750      5.00%, 1/1/38       $2,876,445   
  3,000      5.25%, 1/1/44, Ser. C       3,124,050   
  600      5.50%, 9/1/41, Ser. A       674,004   
  6,050      5.625%, 1/1/33, Ser. A       6,677,385   
  600      5.75%, 1/1/33, Ser. F       657,354   
  250      San Juan Higher Education Finance Auth. Rev., 6.70%, 8/15/40, Ser. A       285,487   
  State Public Finance Auth. Charter School Finance Corp. Rev., Ser. A,      
  400      5.875%, 12/1/36       416,876   
  2,000      Cosmos Foundation, 5.375%, 2/15/37       2,019,340   
  4,000      Tarrant Cnty. Cultural Education Facs. Finance Corp. Rev., Baylor Health Care Systems Project, 6.25%, 11/15/29       4,537,440   
  1,000      Uptown Dev. Auth., Tax Allocation, Infrastructure Improvement Facs., 5.50%, 9/1/29       1,080,160   
  500      Wise Cnty. Rev., Parker Cnty. Junior College Dist., 8.00%, 8/15/34       579,600   
  `              50,900,820   
  Utah – 1.5%      
  7,000      Salt Lake Cnty. Rev., IHC Health Services, 5.125%, 2/15/33 (AMBAC)       7,944,090   
  Virginia – 2.0%      
  Fairfax Cnty. Industrial Dev. Auth. Rev., Inova Health Systems,      
  6,490      5.00%, 5/15/40       6,987,199   
  1,000      5.50%, 5/15/35, Ser. A       1,106,020   
  1,985      Peninsula Town Center Community Dev. Auth. Rev., 6.45%, 9/1/37       2,067,000   
                10,160,219   
  Washington – 1.3%      
  Health Care Facs. Auth. Rev.,      
  700      Multicare Health Systems, 6.00%, 8/15/39, Ser. B (AGC)       763,189   
  250      Seattle Cancer Care Alliance, 7.375%, 3/1/38       300,243   
  2,000      Virginia Mason Medical Center, 6.125%, 8/15/37, Ser. A       2,115,340   
  State Housing Finance Commission Rev., Skyline at First Hill Project, Ser. A,      
  230      5.25%, 1/1/17       230,039   
  3,600      5.625%, 1/1/38       3,374,208   
                6,783,019   
  West Virginia – 0.2%      
  1,000      Hospital Finance Auth. Rev., Highland Hospital, 9.125%, 10/1/41       992,580   
  Wisconsin – 0.1%      
  500      Health & Educational Facs. Auth. Rev., Prohealth Care, Inc., 6.625%, 2/15/39       557,450   
  Total Municipal Bonds & Notes (cost-$451,906,052)         493,218,785   
  Variable Rate Notes (h) – 2.4%            
  Iowa – 0.3%      
  2,836      Finance Auth. Rev., Deerfield Retirement Community, Inc., 2.70%, 11/15/46, Ser. A (k)       1,776,028   
  Texas – 0.4%      
  1,000      JPMorgan Chase Putters/Drivers Trust, GO, 9.42%, 2/1/17, Ser. 3480 (a)(d)(g)       1,220,150   
  600      JPMorgan Chase Putters/Drivers Trust Rev., 10.03%, 10/1/31, Ser. 3227 (a)(d)(g)       775,686   
                1,995,836   
  Washington – 1.7%      
  6,670      JPMorgan Chase Putters/Drivers Trust, GO, 13.785%, 8/1/28, Ser. 3388 (a)(d)(g)       8,782,656   
  Total Variable Rate Notes (cost-$12,431,191)         12,554,520   

 

14   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Short-Term Investments – 2.0%            
  U.S. Government Agency Securities (m) – 1.0%      
  $2,002      Federal Home Loan Bank Discount Notes, 0.079%, 10/8/14-10/29/14       $2,001,296   
  Federal Home Loan Bank Discount Notes,      
  100      0.056%, 6/18/14       99,993   
  698      0.057%, 7/30/14       697,902   
  1,400      0.101%, 8/1/14       1,399,642   
  1,100      Freddie Mac Discount Notes, 0.076%, 10/24/14       1,099,597   
  Total U.S. Government Agency Securities (cost-$5,298,430)         5,298,430   
  U.S. Treasury Obligations – 0.7%      
  600      U.S. Treasury Bills, 0.051%-0.08%, 5/8/14-9/18/14 (m)       599,915   
  U.S. Treasury Notes,      
  500      0.25%, 5/31/14       500,088   
  2,500      0.50%, 8/15/14       2,503,272   
  Total U.S. Treasury Obligations (cost-$3,602,631)         3,603,275   
  Variable Rate Demand Note – 0.3%            
  South Carolina – 0.3%      
  1,290      Educational Facs. Auth. Rev., Furman Univ., 0.09%, 5/1/14 (final maturity 10/1/39), Ser. B (h)(i) (cost-$1,290,000)       1,290,000   
  Total Short-Term Investments (cost-$10,191,061)       10,191,705   
  Total Investments (cost-$474,528,304) – 100.0%       $515,965,010   

Industry classification of portfolio holdings as a percentage of total investments was as follows:

 

Revenue Bonds:

   

Health, Hospital & Nursing Home Revenue

    22.3  

Miscellaneous Revenue

    14.0     

Highway Revenue Tolls

    7.3     

Tobacco Settlement Funded

    6.8     

Natural Gas Revenue

    5.7     

College & University Revenue

    4.1     

Port, Airport & Marina Revenue

    3.9     

Water Revenue

    3.7     

Industrial Revenue

    3.3     

Miscellaneous Taxes

    3.2     

Electric Power & Light Revenue

    2.9     

Sewer Revenue

    1.6     

Lease (Appropriation)

    0.7     

Transit Revenue

    0.6     

Ad Valorem Property Tax

    0.4     
 

 

 

   

Total Revenue Bonds

      80.5

General Obligation

      13.6   

Special Assessment

      3.4   

U.S. Government Agency Securities

      1.0   

U.S. Treasury Obligations

      0.7   

Certificates of Participation

      0.5   

Tax Allocation

      0.3   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

April 30, 2014  |   Annual Report     15   


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (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 $11,013,176, representing 2.1% of total investments.  

 

(b)   Illiquid.  

 

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

 

(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)   Fair-Valued–Securities with an aggregate value of $234,684, representing 0.05% of total investments. See Note 1(a) and Note 1(b) in the Notes to Financial Statements.  

 

(g)   Inverse Floater–The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on April 30, 2014.  

 

(h)   Variable Rate Notes–Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on April 30, 2014.  

 

(i)   Date shown is date of next put.  

 

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

 

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

 

(l)   Restricted. The aggregate acquisition cost of such security is $932,489. The aggregate value is $234,684, representing 0.05% of total investments.  

 

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

 

(n)   Floating Rate Notes–The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2014 was $13,309,852 at a weighted average interest rate, including fees, 0.65%.  

 

(o)   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
4/30/14
 

Investments in Securities – Assets

       

Municipal Bonds & Notes:

       

Alaska

    $–        $3,772,722        $405,000        $4,177,722   

Iowa

           6,185,260        5,320        6,190,580   

Tennessee

           11,088,000        234,684        11,322,684   

All Other

           471,527,799               471,527,799   

Variable Rate Notes

           12,554,520               12,554,520   

Short-Term Investments

           10,191,705               10,191,705   

Totals

    $–      $ 515,320,006      $ 645,004      $ 515,965,010   

At April 30, 2014, there were no transfers between Levels 1 and 2.

 

16   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO Municipal Income Fund

April 30, 2014 (continued)

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the year ended April 30, 2014, was as follows:

 

     Beginning
Balance
4/30/13
    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
4/30/14
 

Investments in Securities – Assets

  

           

Municipal Bonds & Notes:

                 

Alaska

    $        –        $        –        $–        $–        $–        $        –        $405,000        $–        $405,000   

Iowa

           13,073                             (7,753                   5,320   

Tennessee

    472,350                                    (237,666                   234,684   

Totals

    $472,350        $13,073        $–        $–        $–        $(245,419     $405,000        $–        $645,004   

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, 2014.

 

     Ending Balance
at 4/30/14
    Valuation
Technique Used
  Unobservable
Inputs
  Input Values

Investments in Securities – Assets

 

Municipal Bonds & Notes

    $410,320      Third-Party Pricing Vendor   Projected Revenue Stream   $1.00-$45.00
    234,684      Benchmark Pricing   Security Price Reset   $24.97

 

*   Transferred out of Level 2 into Level 3 due to lack of updated information needed to evaluate a price.  

The net change in unrealized appreciation/depreciation of Level 3 investments held at April 30, 2014, was $(292,218). Net change in unrealized appreciation/depreciation is reflected on the Statement of Operations.

 

(p)   The following is a summary of the derivative instruments categorized by risk exposure:  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2014:

 

Location   Interest
Rate
Contracts
 
Net realized gain on:  
Swaps     $56,416   
 

 

 

 

Glossary:

ACA   -  

insuredby American Capital Access Holding Ltd.

AGC   -  

insuredby Assured Guaranty Corp.

AGM   -  

insuredby Assured Guaranty Municipal Corp.

AMBAC   -  

insuredby American Municipal Bond Assurance Corp.

CP   -  

Certificatesof Participation

FGIC   -  

insuredby Financial Guaranty Insurance Co.

FHA   -  

insuredby Federal Housing Administration

GO   -  

GeneralObligation Bond

PIK   -  

Payment-in-Kind

NPFGC   -  

insuredby National Public Finance Guarantee Corp.

 

See accompanying Notes to Financial Statements     |  April 30, 2014  |     Annual Report     17   


Table of Contents

Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2014

 

Principal
Amount
(000s)
              Value  
  California Municipal Bonds & Notes – 87.8%            
  $10,000      Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/34, Ser. F-1       $10,800,600   
  5,000      Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B       5,694,300   
  650      City & Cnty. of San Francisco, Capital Improvement Projects, CP, 5.25%, 4/1/31, Ser. A       722,189   
  350      Contra Costa Cnty. Public Financing Auth., Tax Allocation, 5.85%, 8/1/33, Ser. A       350,018   
  5,000      Desert Community College Dist., GO, 5.00%, 8/1/37, Ser. C (AGM)       5,328,550   
  6,300      Eastern Municipal Water Dist., CP, 5.00%, 7/1/35, Ser. H       6,629,868   
  Educational Facs. Auth. Rev. (h),      
  10,200      Claremont McKenna College, 5.00%, 1/1/39       10,851,576   
  10,000      Univ. of Southern California, 5.00%, 10/1/39, Ser. A       11,214,000   
  2,975      El Dorado Irrigation Dist. & El Dorado Water Agcy., CP, 5.75%, 8/1/39, Ser. A (AGC) (Pre-refunded @ $100, 8/ 1/14) (c)       3,015,133   
  14,425      El Monte, Department of Public Social Services Fac., Phase II, CP, 5.25%, 1/1/34
(AMBAC) (a)(b)(i) (acquisition cost-$14,425,000; purchased 8/2/01)
      14,463,947   
  1,000      Folsom Redev. Agcy., Tax Allocation, 5.50%, 8/1/36       1,017,180   
        Fremont Community Facs. Dist. No. 1, Special Tax,          
  165      6.00%, 9/1/18       166,071   
  505      6.00%, 9/1/19       508,277   
  3,500      6.30%, 9/1/31       3,512,460   
  Golden State Tobacco Securitization Corp. Rev.,      
  3,000      5.00%, 6/1/35, Ser. A (FGIC)       3,058,320   
  6,000      5.00%, 6/1/38, Ser. A (FGIC)       6,028,980   
  1,600      5.00%, 6/1/45 (AMBAC-TCRS)       1,601,920   
  2,195      5.00%, 6/1/45, Ser. A       2,197,634   
  8,300      5.125%, 6/1/47, Ser. A-1       6,287,748   
  30,675      5.75%, 6/1/47, Ser. A-1       25,321,292   
  Health Facs. Financing Auth. Rev.,      
  2,000      Adventist Health System, 5.75%, 9/1/39, Ser. A       2,234,180   
  2,000      Catholic Healthcare West, 6.00%, 7/1/34, Ser. A       2,012,160   
  4,000      Catholic Healthcare West, 6.00%, 7/1/39, Ser. A       4,445,840   
  11,000      Stanford Hospital Clinics, 5.00%, 8/15/51, Ser. A       11,776,050   
  1,000      Children’s Hospital of Orange Cnty., 6.50%, 11/1/38, Ser. A       1,170,940   
  1,450      Scripps Health, 5.00%, 11/15/36, Ser. A       1,546,425   
  3,400      Stanford Hospital, 5.25%, 11/15/40, Ser. A-2       3,729,426   
  1,000      Sutter Health, 5.00%, 8/15/35, Ser. D       1,054,790   
  1,600      Sutter Health, 5.00%, 11/15/42, Ser. A (IBC-NPFGC)       1,655,600   
  3,000      Sutter Health, 5.00%, 8/15/52, Ser. A       3,192,150   
  2,800      Sutter Health, 6.00%, 8/15/42, Ser. B       3,213,364   
  1,000      Imperial Irrigation Dist. Rev., 5.00%, 11/1/41, Ser. C       1,036,970   
  10,000      Infrastructure & Economic Dev. Bank Rev., Independent System Operator Corp.,
5.00%, 2/1/39
      10,594,500   
  10,590      Kern Cnty., Capital Improvements Projects, CP, 5.75%, 8/1/35, Ser. A (AGC)       11,631,209   
  Lancaster Redev. Agcy., Tax Allocation,      
  215      6.875%, 8/1/39       233,150   
  285      6.875%, 8/1/39 (Pre-refunded @ $100, 8/ 1/19) (c)       365,208   
  5,000      Long Beach Airport Rev., 5.00%, 6/1/40, Ser. A       5,155,500   
  1,000      Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, 5.50%, 11/15/27, Ser. A       1,153,260   

 

18   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  Los Angeles Department of Water & Power Rev.,      
  $5,000      4.75%, 7/1/30, Ser. A-2 (AGM) (h)       $5,177,150   
  4,100      5.00%, 7/1/37, Ser. B       4,496,306   
  5,000      5.00%, 7/1/43, Ser. B       5,409,850   
  3,000      5.375%, 7/1/34, Ser. A (h)       3,319,680   
  7,000      5.375%, 7/1/38, Ser. A (h)       7,701,120   
        Los Angeles Unified School Dist., GO,          
  10,000      5.00%, 7/1/29, Ser. I (h)       11,243,100   
  3,500      5.00%, 1/1/34, Ser. I       3,842,440   
  5,000      5.00%, 1/1/34, Ser. I (h)       5,489,200   
  250      5.30%, 1/1/34, Ser. D       279,293   
  1,900      M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B       2,472,812   
  700      Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A       722,078   
        Municipal Finance Auth. Rev.,          
  1,045      Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B       1,181,707   
  2,900      Biola Univ., 5.875%, 10/1/34       3,210,677   
  1,250      Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C       1,297,100   
        Pollution Control Financing Auth. Rev.,          
  1,250      American Water Capital Corp. Project, 5.25%, 8/1/40 (a)(b)(d)(i)
(acquisition cost-$1,250,000; purchased 8/11/10)
      1,275,200   
  2,000      San Jose Water Co. Projects, 5.10%, 6/1/40       2,070,600   
  5,000      Sacramento Cnty. Sanitation Dists. Financing Auth. Rev., 5.00%, 8/1/30 (NPFGC)       5,237,300   
  6,250      San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. 2008-A (AGM)       6,842,187   
  3,285      San Diego Regional Building Auth. Rev., Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A       3,595,170   
        San Joaquin Hills Transportation Corridor Agcy. Rev., Ser. A,          
  5,000      5.50%, 1/15/28       5,001,750   
  5,000      5.70%, 1/15/19       5,108,000   
  230      San Jose, Special Assessment, 5.60%, 9/2/17, Ser. 24-Q       237,848   
  1,500      San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36       1,721,745   
  1,200      San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A       1,270,068   
  3,500      Santa Clara Cnty. Financing Auth. Rev., El Camino Hospital, 5.75%, 2/1/41, Ser. A (AMBAC)       3,733,415   
  1,300      Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community,
7.00%, 9/1/36, Ser. A
      1,482,520   
  State, GO,      
  5,885      5.00%, 9/1/35       6,343,441   
  100      5.00%, 6/1/37       106,583   
  3,000      5.00%, 12/1/37       3,228,120   
  7,000      5.00%, 11/1/43       7,582,680   
  2,400      5.25%, 11/1/40       2,666,904   
  1,500      5.50%, 3/1/40       1,686,105   
  2,000      6.00%, 4/1/38       2,348,480   
  2,000      6.00%, 11/1/39       2,381,800   
  State Public Works Board Rev.,      
  2,000      5.75%, 10/1/30, Ser. G-1       2,295,080   
  2,000      California State Univ., 6.00%, 11/1/34, Ser. J       2,302,660   
  1,500      Judicial Council Projects, 5.00%, 12/1/29, Ser. D       1,659,000   

 

April 30, 2014  |   Annual Report     19   


Table of Contents

Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  $2,000      Regents Univ., 5.00%, 4/1/34, Ser. E (Pre-refunded @ $100, 4/1/19) (c)       $2,370,420   
  Statewide Communities Dev. Auth. Rev.,      
  1,000      American Baptist Homes West, 6.25%, 10/1/39       1,052,710   
  900      California Baptist Univ., 5.50%, 11/1/38, Ser. A       874,080   
  845      Catholic Healthcare West, 5.50%, 7/1/31, Ser. D       926,821   
  10,000      Cottage Health, 5.00%, 11/1/40       10,278,600   
  7,500      Kaiser Permanente, 5.00%, 4/1/42, Ser. A       7,998,525   
  1,000      Kaiser Permanente, 5.25%, 3/1/45, Ser. B       1,024,000   
  1,000      Lancer Student Housing Project, 7.50%, 6/1/42       1,083,750   
  1,870      Methodist Hospital Project, 6.625%, 8/1/29 (FHA)       2,214,174   
  6,875      Methodist Hospital Project, 6.75%, 2/1/38 (FHA)       8,104,869   
  100      St. Joseph Health System, 5.125%, 7/1/24 (NPFGC)       111,679   
  3,200      St. Joseph Health System, 5.75%, 7/1/47, Ser. A-3 (FGIC)       3,524,160   
  2,000      Sutter Health, 6.00%, 8/15/42, Ser. A       2,295,260   
  3,915      The Internext Group, CP, 5.375%, 4/1/30       3,924,239   
  4,000      Univ. of California Irvine E. Campus, 5.125%, 5/15/31       4,171,160   
  4,500      Univ. of California Irvine E. Campus, 5.375%, 5/15/38       4,663,575   
  6,300      Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A       6,432,993   
  2,500      Township Health Care Dist, GO, 5.00%, 8/1/43, Ser. B       2,647,800   
  2,000      Turlock, Emanuel Medical Center, CP, 5.50%, 10/15/37, Ser. B       2,148,180   
  2,000      Univ. of California Rev., 5.00%, 5/15/43, Ser. J       2,133,100   
  1,000      Westlake Village, CP, 5.00%, 6/1/39       1,018,070   
  Total California Municipal Bonds & Notes (cost-$346,317,870)         379,988,119   
  Other Municipal Bonds & Notes – 3.0%            
  Iowa – 1.8%      
  8,600      Tobacco Settlement Auth. Rev., 5.60%, 6/1/34, Ser. B       7,783,086   
  Texas – 1.2%      
  5,000      Wood Cnty. Central Hospital Dist. Rev., East Texas Medical Center Quitman Project, 6.00%, 11/1/41       5,396,500   
  Total Other Municipal Bonds & Notes (cost-$13,886,713)         13,179,586   
  California Variable Rate Notes (a)(b)(d)(e)(f)(i) – 1.8%            
  Health Facs. Financing Auth. Rev.,      
  1,000      9.459%, 11/15/36, Ser. 3193 (acquisition cost-$972,060; purchased 6/7/10)       1,100,550   
  6,000      11.704%, 11/15/42, Ser. 3255 (acquisition cost-$3,698,520; purchased 3/25/11)       6,471,960   
  Total California Variable Rate Notes (cost-$4,677,660)         7,572,510   
  Short-term Investments – 7.4%            
  California Variable Rate Demand Notes (f)(g) – 3.8%      
  10,000      East Bay Municipal Utility Dist. Rev., 0.05%, 5/22/14, (final maturity 6/1/38), Ser. A-4       10,000,000   
  6,500      Health Facs. Financing Auth. Rev., 0.04%, 5/22/14, (final maturity 10/1/31), Ser. B       6,500,000   
  Total California Variable Rate Demand Notes (cost-$16,500,000)       16,500,000   
  U.S. Government Agency Securities (j) – 3.6%      
  14,600      Federal Home Loan Bank Discount Notes, 0.091%, 7/23/14       14,596,970   
  800      Freddie Mac Discount Notes, 0.122%, 7/11/14       799,811   
  Total U.S. Government Agency Securities (cost-$15,396,781)       15,396,781   
  Total Short-Term Investments (cost-$31,896,781)       31,896,781   
  Total Investments (cost-$396,779,024) – 100.0%       $432,636,996   

 

20   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2014 (continued)

 

Industry classification of portfolio holdings as a percentage of total investments was as follows:

 

Revenue Bonds:

   

Health, Hospital & Nursing Home Revenue

    24.1  

Tobacco Settlement Funded

    12.1     

Water Revenue

    6.7     

College & University Revenue

    6.6     

Electric Power & Light Revenue

    5.1     

Highway Revenue Tolls

    4.8     

Lease (Abatement)

    2.8     

Local or Guaranteed Housing

    2.3     

Natural Gas Revenue

    2.1     

Sewer Revenue

    1.2     

Port, Airport & Marina Revenue

    1.2     

Hotel Occupancy Tax

    0.4     
 

 

 

   

Total Revenue Bonds

      69.4

General Obligation

      13.3   

Certificates of Participation

      11.8   

U.S. Government Agency Securities

      3.6   

Special Tax

      1.0   

Tax Allocation

      0.8   

Special Assessment

      0.1   
   

 

 

 

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 $23,311,657, representing 5.4% 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)   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, 2014.  

 

(f)   Variable Rate Notes–Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on April 30, 2014.  

 

(g)   Date shown is date of next put.  

 

(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 securities is $20,345,580. The aggregate value is $23,311,657, representing 5.4% of total investments.  

 

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

 

April 30, 2014  |   Annual Report     21   


Table of Contents

Schedule of Investments

PIMCO California Municipal Income Fund

April 30, 2014 (continued)

 

 

(k)   Floating Rate Notes–The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2014 was $31,765,500 at a weighted average interest rate, including fees, of 0.69%.  

 

(l)   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
4/30/14
 

Investments in Securities – Assets

       

California Municipal Bonds & Notes

  $        $379,988,119        $–        $379,988,119   

Other Municipal Bonds & Notes

           13,179,586               13,179,586   

California Variable Rate Notes

           7,572,510               7,572,510   

Short-Term Investments

           31,896,781               31,896,781   

Totals

  $        $432,636,996        $–        $432,636,996   

At April 30, 2014, there were no transfers between Levels 1 and 2.

 

(m)   The following is a summary of the derivative instruments categorized by risk exposure:  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2014:

 

Location   Interest
Rate
Contracts
 
Net realized gain on:  
Swaps     $110,024   
 

 

 

 

Glossary:

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

 

22   Annual Report     |  April 30, 2014  |     See accompanying Notes to Financial Statements


Table of Contents

Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2014

 

Principal
Amount
(000s)
              Value  
  NEW YORK MUNICIPAL BONDS & NOTES – 93.4%            
  Hudson Yards Infrastructure Corp. Rev., Ser. A,      
  $3,000      5.25%, 2/15/47       $3,198,510   
  4,000      5.75%, 2/15/47       4,444,320   
  Liberty Dev. Corp. Rev.,      
  Long Island Power Auth. Rev., Ser. A,      
  750      5.00%, 9/1/34 (AMBAC)       755,040   
  4,500      5.75%, 4/1/39       5,056,110   
  Metropolitan Transportation Auth. Rev.,      
  2,000      5.00%, 11/15/42, Ser. H       2,116,600   
  1,000      5.00%, 11/15/43, Ser. B       1,060,350   
  1,600      Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A       818,624   
  2,000      New York City, GO, 5.00%, 8/1/31, Ser. D-1       2,234,980   
  3,500      New York City Health & Hospital Corp. Rev., 5.00%, 2/15/30, Ser. A       3,743,950   
  New York City Industrial Dev. Agcy. Rev.,      
  1,000      Liberty Interactive Corp., 5.00%, 9/1/35       1,005,780   
  900      Pilot Queens Baseball Stadium, 6.50%, 1/1/46 (AGC)       1,002,330   
  3,200      Yankee Stadium, 7.00%, 3/1/49 (AGC)       3,686,656   
  5,000      New York City Transitional Finance Auth. Rev., 5.25%, 1/15/39, Ser. S-3       5,447,800   
  New York City Water & Sewer System Rev.,      
  2,500      5.00%, 6/15/40, Ser. FF-2       2,680,075   
  5,000      Second Generation Resolutions, 4.75%, 6/15/35, Ser. DD (a)       5,215,550   
  New York Liberty Dev. Corp. Rev.,      
  2,000      1 World Trade Center Project, 5.00%, 12/15/41       2,115,240   
  6,000      4 World Trade Center Project, 5.75%, 11/15/51       6,611,100   
  6,150      Bank of America Tower at One Bryant Park Project, 5.125%, 1/15/44       6,486,036   
  1,500      Bank of America Tower at One Bryant Park Project, 6.375%, 7/15/49       1,640,565   
  120      Goldman Sachs Headquarters, 5.25%, 10/1/35       137,119   
  11,290      Goldman Sachs Headquarters, 5.25%, 10/1/35 (a)       12,900,631   
  1,925      Goldman Sachs Headquarters, 5.50%, 10/1/37       2,254,213   
  600      Onondaga Cnty. Rev., Syracuse Univ. Project, 5.00%, 12/1/36       645,750   
  1,000      Port Auth. of New York & New Jersey Rev., JFK International Air Terminal, 6.00%, 12/1/36       1,108,460   
  State Dormitory Auth. Rev.,      
  1,000      5.00%, 2/15/29, Ser. A       1,133,480   
  500      5.00%, 7/1/35, Ser. A       538,890   
  1,000      5.00%, 3/15/38, Ser. A       1,082,740   
  1,350      5.00%, 7/1/42, Ser. A       1,454,774   
  1,000      Fordham Univ., 5.50%, 7/1/36, Ser. A       1,103,610   
  2,000      Mount Sinai Hospital, 5.00%, 7/1/31, Ser. A       2,163,360   
  1,300      Mount Sinai School of Medicine, 5.125%, 7/1/39       1,357,603   
  4,500      New York Univ., 5.00%, 7/1/38, Ser. C       4,867,290   
  1,225      NYU Hospitals Center, 6.00%, 7/1/40, Ser. A       1,365,214   
  1,000      Pratt Institute, 5.125%, 7/1/39, Ser. C (AGC)       1,049,510   
  2,500      Sloan-Kettering Center Memorial, 4.50%, 7/1/35, Ser. A-1       2,541,550   
  1,800      Teachers College, 5.50%, 3/1/39       1,922,940   
  1,250      The New School, 5.50%, 7/1/40       1,351,338   
  State Thruway Auth. Rev., Ser. I,      
  2,000      5.00%, 1/1/37       2,148,400   
  3,645      5.00%, 1/1/42       3,888,085   

 

April 30, 2014  |   Annual Report     23   


Table of Contents

Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2014 (continued)

 

Principal
Amount
(000s)
              Value  
  $1,800      State Urban Dev. Corp. Rev., 5.00%, 3/15/36, Ser. B-1 (a)       $1,950,624   
  3,000      Triborough Bridge & Tunnel Auth. Rev., 5.25%, 11/15/34, Ser. A-2 (a)       3,341,550   
  3,000      Troy Capital Res. Corp. Rev., Rensselaer Polytechnic Institute Project,
5.125%, 9/1/40, Ser. A
      3,152,490   
  5,860      Troy Industrial Dev. Auth. Rev., Rensselaer Polytechnic Institute Project, 4.625%, 9/1/26       6,286,256   
  TSASC, Inc. Rev., Ser. 1,      
  3,000      5.00%, 6/1/26       2,876,460   
  3,000      5.00%, 6/1/34       2,514,030   
  2,205      5.125%, 6/1/42       1,777,450   
  2,945      Warren & Washington Cntys. Industrial Dev. Agcy. Rev., Glens Falls Hospital Project, 5.00%, 12/1/27, Ser. C (AGM)       2,949,859   
  910      Westchester Cnty. Healthcare Corp. Rev., 6.125%, 11/1/37, Ser. C-2       1,017,353   
  200      Yonkers Economic Dev. Corp. Rev., Charter School of Educational Excellence Project, 6.00%, 10/15/30, Ser. A       206,122   
  400      Yonkers Industrial Dev. Agcy. Rev., Sarah Lawrence College Project,
6.00%, 6/1/41, Ser. A
      436,192   
  Total New York Municipal Bonds & Notes (cost-$123,662,359)         130,842,959   
  OTHER MUNICIPAL BONDS & NOTES – 1.8%            
  Ohio – 1.8%      
  2,875      Buckeye Tobacco Settlement Financing Auth. Rev., 6.50%, 6/1/47, Ser. A-2
(cost-$2,409,570)
        2,534,485   
  SHORT-TERM INVESTMENTS – 4.8%            
  U.S. Treasury Obligations – 3.6%      
  U.S. Treasury Notes,      
  300      0.25%, 6/30/14       300,111   
  1,600      0.50%, 10/15/14       1,603,250   
  200      1.00%, 5/15/14       200,078   
  2,900      2.25%, 5/31/14       2,905,325   
  Total U.S. Treasury Obligations (cost-$5,007,809)       5,008,764   
  U.S. Government Agency Securities (b) – 1.2%      
  1,400      Fannie Mae Discount Notes, 0.066%, 9/3/14       1,399,684   
  300      Freddie Mac Discount Notes, 0.101%, 7/1/14       299,949   
  Total U.S. Government Agency Securities (cost-$1,699,633)       1,699,633   
  Total Short-Term Investments (cost-$6,707,442)       6,708,397   
  Total Investments (cost-$132,779,371) – 100.0%       $140,085,841   

 

24   Annual Report   |  April 30, 2014


Table of Contents

Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2014 (continued)

 

Industry classification of portfolio holdings as a percentage of total investments was as follows:

 

Revenue Bonds:

   

College & University Revenue

    17.3  

Industrial Revenue

    14.2     

Miscellaneous Revenue

    14.1     

Health, Hospital & Nursing Home Revenue

    8.3     

Tobacco Settlement Funded

    6.9     

Highway Revenue Tolls

    6.7     

Water Revenue

    5.6     

Miscellaneous Taxes

    5.5     

Electric Power & Light Revenue

    4.1     

Income Tax Revenue

    3.0     

Recreational Revenue

    2.6     

Port, Airport & Marina Revenue

    2.3     

Transit Revenue

    2.3     

Economic Development Revenue

    0.7     
 

 

 

   

Total Revenue Bonds

      93.6

U.S. Treasury Obligations

      3.6   

General Obligation

      1.6   

U.S. Government Agency Securities

      1.2   
   

 

 

 

Total Investments

      100.0
   

 

 

 

Notes to Schedule of Investments:

(a)   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.  

 

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

 

(c)   Floating Rate Notes–The weighted average daily balance of Floating Rate Notes outstanding during the year ended April 30, 2014 was $10,476,876 at a weighted average interest rate, including fees, of 0.48%.  

 

(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
4/30/14
 

Investments in Securities – Assets

       

New York Municipal Bonds & Notes

  $        $130,842,959        $–        $130,842,959   

Other Municipal Bonds & Notes

           2,534,485               2,534,485   

Short-Term Investments

           6,708,397               6,708,397   

Totals

  $      $ 140,085,841        $–        $140,085,841   

At April 30, 2014, there were no transfers between Levels 1 and 2.

 

April 30, 2014  |   Annual Report     25   


Table of Contents

Schedule of Investments

PIMCO New York Municipal Income Fund

April 30, 2014 (continued)

 

 

(e)   The following is a summary of the derivative instruments categorized by risk exposure:  

The effect of derivatives on the Statement of Operations for the year ended April 30, 2014:

 

Location   Interest
Rate
Contracts
 
Net realized gain on:  
Swaps     $6,806   
 

 

 

 

Glossary:

AGC   -   insured by Assured Guaranty Corp.
AGM   -   insured by Assured Guaranty Municipal Corp.
AMBAC   -   insured by American Municipal Bond Assurance Corp.
GO   -   General Obligation Bond

 

26   Annual Report     |  April 30, 2014  |     See accompanying Notes to Financial Statements


Table of Contents

Statements of Assets and Liabilities

PIMCO Municipal Income Funds

April 30, 2014

 

        Municipal         California
Municipal
        New York
Municipal
 
Assets:                  
Investments, at value (cost-$474,528,304, $396,779,024 and $132,779,371, respectively)       $515,965,010          $432,636,996          $140,085,841   
Cash       468,390          65,504          531,948   
Interest receivable       8,180,707          6,716,380          1,915,615   
Prepaid expenses and other assets       98,418          27,958          1,782,899   
Total Assets       524,712,525          439,446,838          144,316,303   
     
Liabilities:                  
Payable for floating rate notes issued       13,063,277          31,765,500          10,476,876   
Dividends payable to common and preferred shareholders       2,067,135          1,432,910          438,887   
Investment management fees payable       270,015          215,152          70,622   
Interest payable       21,917          41,683          16,962   
Accrued expenses and other liabilities       135,108          240,189          102,111   

Total Liabilities

      15,557,452          33,695,434          11,105,458   
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       $319,155,073          $255,751,404          $86,210,845   
     
Composition of Net Assets Applicable to Common Shareholders:                  
Common Shares (no par value):                              

Paid-in-capital

      $332,394,592          $243,067,868          $97,349,844   

Undistributed net investment income

      3,317,970          12,610,432          2,136,589   

Accumulated net realized loss

      (58,009,082)          (35,784,077)          (20,691,638)   

Net unrealized appreciation

      41,451,593          35,857,181          7,416,050   
Net Assets Applicable to Common Shareholders       $319,155,073          $255,751,404          $86,210,845   
Common Shares Issued and Outstanding       25,395,563          18,572,365          7,695,354   
Net Asset Value Per Common Share       $12.57          $13.77          $11.20   

 

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Table of Contents

Statements of Operations

PIMCO Municipal Income Funds

Year ended April 30, 2014

 

        Municipal         California
Municipal
        New York
Municipal
 
Investment Income:                  
Interest       $27,647,767          $21,775,408          $6,367,386   
Miscellaneous       50,000                     

Total Investment Income

      27,697,767          21,775,408          6,367,386   
     
Expenses:                  
Investment management       3,226,552          2,562,665          840,386   
Auction agent and commissions       317,326          244,950          77,965   
Custodian and accounting agent       111,712          88,365          55,827   
Interest       85,948          217,749          50,537   
Audit and tax services       69,397          65,747          61,772   
Shareholder communications       46,673          29,736          23,575   
New York Stock Exchange listing       32,382          36,583          25,835   
Transfer agent       27,015          25,251          25,478   
Trustees       25,873          20,012          6,440   
Legal       15,901          14,028          10,695   
Insurance       14,256          12,149          7,177   
Miscellaneous       10,889          12,991          12,799   

Total Expenses

      3,983,924          3,330,226          1,198,486   
     
Net Investment Income       23,713,843          18,445,182          5,168,900   
     
Realized and Change In Unrealized Gain (Loss):                  

Net realized gain (loss) on:

           

Investments

      (2,006,491)          2,218,470          14,322   

Swaps

      56,416          110,024          6,806   
Net change in unrealized appreciation/depreciation of investments       (26,689,845)          (20,810,254)          (6,287,477)   
Net realized and change in unrealized loss       (28,639,920)          (18,481,760)          (6,266,349)   
Net Decrease in Net Assets Resulting from Investment Operations       (4,926,077)          (36,578)          (1,097,449)   
Dividends on Preferred Shares from Net investment income       (246,234)          (195,517)          (59,642)   
Net Decrease in Net Assets Applicable to Common Shareholders Resulting from Investment Operations       $(5,172,311)          $(232,095)          $(1,157,091)   

 

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Table of Contents

Statements of Changes in Net Assets Applicable to Common Shareholders

PIMCO Municipal Income Funds

 

        Municipal  
        Year ended
April 30, 2014
        Year ended
April 30, 2013
 
Investment Operations:            
Net investment income       $23,713,843          $24,006,518   
Net realized gain (loss)       (1,950,075)          1,171,051   
Net change in unrealized appreciation/depreciation       (26,689,845)          20,496,813   
Net increase (decrease) in net assets resulting from investment operations       (4,926,077)          45,674,382   
   
Dividends on Preferred Shares from Net Investment Income       (246,234)          (471,161)   
Net increase (decrease) in net assets applicable to common shareholders
resulting from investment operations
      (5,172,311)          45,203,221   
   
Dividends to Common Shareholders from Net Investment Income       (24,727,309)          (24,664,665)   
   
Common Share Transactions:            
Reinvestment of dividends       892,591          882,792   
Total increase (decrease) in net assets applicable to
common shareholders
      (29,007,029)          21,421,348   
   
Net Assets Applicable to Common Shareholders:            
Beginning of year       348,162,102          326,740,754   
End of year*       $319,155,073          $348,162,102   
*Including undistributed net investment income of:       $3,317,970          $4,564,423   
   
Common Shares Issued in Reinvestment of Dividends       71,548          58,080   

 

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Table of Contents

Statements of Changes in Net Assets Applicable to Common Shareholders

PIMCO Municipal Income Funds (continued)

 

California Municipal         New York Municipal  
Year ended
April 30, 2014
      Year ended
April 30, 2013
        Year ended
April 30, 2014
        Year ended
April 30, 2013
 
                   
$18,445,182       $18,985,141          $5,168,900          $5,371,779   
2,328,494       768,479          21,128          809,587   
(20,810,254)       15,469,190          (6,287,477)          4,255,627   
(36,578)       35,222,810          (1,097,449)          10,436,993   

(195,517)

      (372,583)          (59,642)          (116,375)   

(232,095)

      34,850,227          (1,157,091)          10,320,618   
       
(17,139,443)       (17,087,147)          (5,259,898)          (5,248,148)   
       
                   
725,214       764,404          119,150          310,460   
    
(16,646,324)
      18,527,484          (6,297,839)          5,382,930   
       
                   
272,397,728       253,870,244          92,508,684          87,125,754   
$255,751,404       $272,397,728          $86,210,845          $92,508,684   
$12,610,432       $11,490,816          $2,136,589          $2,096,304   
       
54,834       51,253          10,748          25,935   

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

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 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, as amended, and the rules and regulations thereunder. Allianz Global Investors Fund Management LLC (“AGIFM” or 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 both 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 share of common shares authorized.

Under normal market conditions, Municipal invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from 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.

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

 

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Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

1. Organization and Significant Accounting Policies (continued)

 

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 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.

Benchmark pricing procedures are used as the basis for setting the base price of a fixed-income security and for subsequently adjusting the price proportionally to market value changes of a pre-determined security deemed to be comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base

price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Committee. The validity of the fair value is reviewed by the Sub-Adviser on a periodic basis and may be amended as the availability of market data indicates a material change.

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 premium or discount based on 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, credit risks and default rates or other market corroborated inputs

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

1. Organization and Significant Accounting Policies (continued)

 

n   Level 3 – valuations based on significant unobservable inputs (including the Sub-Adviser’s or Valuation Committee’s own assumptions and securities whose price was determined by using a single broker’s quote)

The valuation techniques used by the Funds to measure fair value during the year ended April 30, 2014 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.

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”).

U.S. Treasury Obligations – U.S. Treasury obligations are valued by independent pricing services based on pricing models that evaluate the mean between the most recently quoted bid and ask price. The models also take into

consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable U.S. Treasury issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Treasury obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

Government Sponsored Enterprise and Mortgage-Backed Securities – Government sponsored enterprise and mortgage-backed securities are valued by independent pricing services using pricing models based on inputs that include issuer type, coupon, cash flows, mortgage prepayment projection tables and Adjustable Rate Mortgage evaluations that incorporate index data, periodic life caps and the next coupon reset date. To the extent that these inputs are observable, the values of government sponsored enterprise and mortgage-backed securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

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.

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

1. Organization and Significant Accounting Policies (continued)

 

(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. Consent fees relating to corporate actions are recorded as miscellaneous income upon receipt.

(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. In accordance with provisions set forth under U.S. GAAP, the Investment Manager has reviewed the Funds’ tax positions for all open tax years. As of April 30, 2014, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken. The Funds’ 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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

1. Organization and Significant Accounting Policies (continued)

 

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 investments in Fixed Rate Bonds.

The Funds’ restrictions on borrowings do not apply to the secured borrowings deemed to have occurred for accounting purposes. Inverse Floaters held by the Funds are exempt from

registration under Rule 144A of the Securities Act of 1933.

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

(g) Repurchase Agreements

The Funds are parties 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.

The Funds enter into transactions, under the terms of the Master Repo Agreements, 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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

1. Organization and Significant Accounting Policies (continued)

 

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 under the Master Repo Agreements 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 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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

2. Principal Risks (continued)

 

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. Interest rate changes can be sudden and unpredictable, and the Funds may lose money as a result of movements in interest rates. The Funds may not be able to hedge against changes in interest rates or may choose not to do so for cost or other reasons. In addition, any hedges may not work as intended.

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, adverse changes to credit markets or adverse investor sentiment. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities. Credit ratings downgrades may also negatively affect securities held by the Funds. Even when markets perform well, there is no assurance that the investments held by the Funds will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical events will disrupt the economy on a national or global level.

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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

2. Principal Risks (continued)

 

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 hold defaulted securities that may involve special considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material.

A Fund may incur additional expenses to the extent it is required to seek recovery upon a portfolio security’s default in the payment of principal or interest. In any bankruptcy proceeding relating to a defaulted investment, a Fund may lose its entire investment or may be required to accept cash or securities with a value substantially less than its original investment.

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

3. Financial Derivative Instruments

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

(a) Swap Agreements

Swap agreements are bilaterally negotiated agreements between the Funds and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market or event-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over-the-counter market (“OTC swaps”) or

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

3. Financial Derivative Instruments

(continued)

 

may be executed in a multilateral or other trade facility platform, such as a registered commodities exchange (“centrally cleared swaps”). The Funds may enter into credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements in order, among other things, to manage their exposure to credit, currency and interest rate risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

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

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

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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

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.

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.

Please see Note 8 for a discussion of recently proposed changes to the Funds’ investment management and sub-advisory arrangements.

 

 

5. Investments in Securities

For the year ended April 30, 2014, purchases and sales of investments, other than short-term securities were:

 

     Municipal     California
Municipal
    New York
Municipal
 

Purchases

  $ 73,913,262        $85,317,424      $ 13,713,340   

Sales

    86,148,813        111,241,755        17,732,455   

6. Income Tax Information

The tax character of dividends paid was:

 

    Year Ended April 30, 2014     Year Ended April 30, 2013  
     Ordinary
Income
    Tax Exempt
Income
    Ordinary
Income
    Tax Exempt
Income
 

Municipal

  $ 472,999      $ 24,500,544      $ 363,616      $ 24,772,210   

California Municipal

    324,882        17,010,078        222,475        17,237,255   

New York Municipal

    82,049        5,237,491        21,394        5,343,129   

At April 30, 2014, the components of distributable earnings were:

 

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

Municipal

    $3,228,450      $ 58,069,314      $ 261,284      $ 70,865   

California Municipal

    12,398,688        34,129,647        553,629        68,895   

New York Municipal

    2,328,299        20,534,515               76,434   

 

(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, 2013 through April 30, 2014 which the Funds elected to defer to the following taxable year pursuant to income tax regulations.  

 

April 30, 2014  |   Annual Report     41   


Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

6. Income Tax Information (continued)

 

 

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, 2014, capital loss carryforward amounts were:

 

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

Municipal

  $ 459,581      $ 3,577,024        $890,721      $ 49,231,992        $3,909,996          

California Municipal

                         23,866,648        10,262,999          

New York Municipal

                  3,099,084        16,947,180        488,251          

 

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

For the year ended April 30, 2014, PIMCO California Municipal Income utilized post-enactment capital loss carryforwards of $2,834,021 of which $1,671,076 was short-term and $1,162,945 was long-term; New York Municipal Income utilized post-enactment capital loss carryforwards of $95,969, all of which was short-term.

For the year ended April 30, 2014, the Funds had capital loss carryforwards which expired as follows:

 

        Expired  
Municipal        1,105,730   
California Municipal        1,951,329   
New York Municipal        243,785   

For the year ended April 30, 2014, permanent “book-tax” adjustments were:

 

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

Municipal (a)(b)(c)

  $ 13,247      $ 1,092,483      $ (1,105,730

California Municipal (a)(b)(c)

    9,394        1,941,935        (1,951,329

New York Municipal (a)(b)(c)

    82,937        160,848        (243,785

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

 

(a)   Different treatment of Inverse Floaters  

 

(b)   Different treatment of swap transactions  

 

(c)   Expiring Capital Loss Carryforwards  

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

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

6. Income Tax Information (continued)

 

At April 30, 2014, the aggregate cost basis and the net unrealized appreciation of investments for federal income tax purposes were:

 

     Federal Tax
Cost Basis
    Unrealized
Appreciation
    Unrealized
Depreciation
    Net Unrealized
Appreciation
 

Municipal

  $ 460,934,003      $ 51,235,182      $ 9,238,276      $ 41,996,906   

California Municipal

    365,645,907        37,812,191        2,735,029        35,077,162   

New York Municipal

    124,201,011        8,351,572        1,217,749        7,133,823   

 

Differences between book and tax cost basis were attributable to Inverse Floater transactions and wash sale loss deferrals.

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.

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 that is typically re-set every seven days. Distributions of net realized capital gains, if any, are paid annually.

 

For the year ended April 30, 2014, the annualized dividend rates ranged from:

 

                              
      High        Low        At April 30, 2014  

Municipal:

            

Series A

     0.361%           0.066%           0.197%   

Series B

     0.361%           0.066%           0.197%   

Series C

     0.377%           0.066%           0.197%   

Series D

     0.377%           0.066%           0.197%   

Series E

     0.361%           0.066%           0.197%   

California Municipal:

            

Series A

     0.361%           0.066%           0.197%   

Series B

     0.377%           0.066%           0.197%   

Series C

     0.361%           0.066%           0.197%   

New York Municipal:

            

Series A

     0.361%           0.066%           0.197%   

 

April 30, 2014  |   Annual Report     43   


Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

7. Auction-Rate Preferred Shares (continued)

 

 

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 certain matters adversely 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 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 a minimum of 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 Municipal Bond 7-day High Grade Rate Index divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal) multiplied by a minimum of 110% (which is a function of short-term interest rates). As of April 30, 2014 the current multiplies for calculating the maximum rate is 110%. If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Funds’ common shareholders could be adversely affected.

 

8. Subsequent Events

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, 2014, the following dividends were declared to common shareholders payable June 2, 2014 to shareholders of record on May 12, 2014.

 

Municipal      $0.08125 per common share
California Municipal      $0.077 per common share
New York Municipal      $0.057 per common share

On June 2, 2014, the following dividends were declared to common shareholders payable July 1, 2014 to shareholders of record on June 12, 2014.

 

Municipal      $0.08125 per common share
California Municipal      $0.077 per common share
New York Municipal      $0.057 per common share

 

 

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Table of Contents

Notes to Financial Statements

PIMCO Municipal Income Funds

April 30, 2014

 

8. Subsequent Events (continued)

 

On March 10-11, 2014, the Board approved, subject to the approval of the Funds’ shareholders, a new investment management agreement (the “Agreement”) between the Funds and PIMCO, pursuant to which PIMCO would replace AGIFM as the investment manager to the Funds. Under the Agreement, PIMCO would continue to provide the day-to-day portfolio management services it currently provides to the Funds as their sub-adviser and would also assume responsibility for the supervisory and administrative services currently provided by AGIFM to the Funds as their investment manager. If the Agreement is approved by the Funds’ shareholders, the same investment professionals that are currently responsible for managing the Funds’ portfolio will continue to do so following the proposed transition, and PIMCO personnel will replace AGIFM personnel as Fund officers and in other roles to provide and oversee the administrative, accounting/financial reporting, compliance, legal, marketing, transfer agency, shareholder servicing and other services required for the daily operations of the Funds. Although the proposed management fee rate to be paid to PIMCO by each Fund under the Agreement is higher than the management fee rate imposed under the corresponding current agreement (except for Dynamic Income, whose proposed

management fee rate is the same under the Agreement and the corresponding current agreement), the proposed unified fee arrangement under the Agreement covers the Funds’ portfolio management and administrative services covered under the current agreement and also requires PIMCO, at its expense, to procure most other supervisory and administrative services required by the Funds that ate currently paid for or incurred by the Funds directly outside of the current agreements. A definitive proxy statement relating to the Agreement was filed with the Securities and Exchange Commission and distributed to shareholders of the Funds on April 21, 2014.

The special meeting of shareholders of the Funds to consider the Agreement was convened as scheduled on June 9, 2014. However, because sufficient votes in favor of the Agreement had not been received at the time of the special meeting, the shareholders present voted to adjourn the special meeting to July 10, 2014 to permit further solicitation of proxies.

There were no other subsequent events identified that require recognition or disclosure.

 

 

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Table of Contents

Financial Highlights

PIMCO Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2014         2013         2012         2011         2010  
Net asset value, beginning of year       $13.75            $12.93            $10.72            $11.76            $9.38   
Investment Operations:                              
Net investment income       0.94            0.95            1.01            1.07            1.18   
Net realized and change in unrealized gain (loss)       (1.13         0.87            2.20            (1.10         2.22   
Total from investment operations       (0.19         1.82            3.21            (0.03         3.40   
Dividends on Preferred Shares from Net Investment Income       (0.01         (0.02         (0.02         (0.03         (0.04
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       (0.20         1.80            3.19            (0.06         3.36   
Dividends to Common Shareholders from Net Investment Income       (0.98         (0.98         (0.98         (0.98         (0.98
Net asset value, end of year       $12.57            $13.75            $12.93            $10.72            $11.76   
Market price, end of year       $13.58            $16.05            $15.28            $12.92            $13.72   
Total Investment Return (1)       (8.45 )%          11.96         27.20         1.54         30.34
RATIOS/SUPPLEMENTAL DATA:                              
Net assets, applicable to common shareholders, end of year (000s)       $319,155            $348,162            $326,741            $269,916            $294,457   
Ratio of expenses to average
net assets, including interest expense (2)(3)
      1.30         1.22 %(4)(5)          1.28 %(4)(5)          1.44 %(5)          1.46 %(4)(5) 
Ratio of expenses to average
net assets, excluding interest expense (2)
      1.27         1.19 %(4)(5)          1.22 %(4)(5)          1.34 %(5)          1.34 %(4)(5) 
Ratio of net investment income
to average net assets (2)
      7.74         6.99 %(4)          8.42 %(4)          9.43         10.77 %(4) 
Preferred shares asset coverage per share       $66,993            $70,809            $67,990            $60,514            $63,743   
Portfolio turnover rate       15         9         18         15         11

 

(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)   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.  
(4)   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% and 0.01% for the years ended April 30, 2013, April 30, 2012 and April 30, 2010, respectively.  
(5)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank (See note 1(k) in Notes to Financial Statements).  

 

46   Annual Report     |  April 30, 2014  |     See accompanying Notes to Financial Statements


Table of Contents

Financial Highlights

PIMCO California Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2014         2013         2012         2011         2010  
Net asset value, beginning of year       $14.71            $13.75            $11.32            $12.84            $10.61   
Investment Operations:                              
Net investment income       0.99          1.02          1.08          1.12          1.21   
Net realized and change in unrealized gain (loss)       (1.00       0.88          2.29          (1.69       1.98   
Total from investment operations       (0.01       1.90          3.37          (0.57       3.19   
Dividends on Preferred Shares from Net Investment Income       (0.01       (0.02       (0.02       (0.03       (0.04
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       (0.02       1.88          3.35          (0.60       3.15   
Dividends to Common Shareholders from Net Investment Income       (0.92       (0.92       (0.92       (0.92       (0.92
Net asset value, end of year       $13.77          $14.71          $13.75          $11.32          $12.84   
Market price, end of year       $14.38          $15.33          $14.83          $11.99          $13.29   
Total Investment Return (1)       0.61       9.96       32.94       (2.79 )%        17.72
RATIOS/SUPPLEMENTAL DATA:                              
Net assets, applicable to common shareholders, end of year (000s)       $255,751          $272,398          $253,870          $208,147          $234,792   
Ratio of expenses to average
net assets, including interest expense (2)(3)
      1.36       1.30 %(4)(5)        1.36 %(4)(5)        1.48 %(5)        1.49 %(4)(5) 
Ratio of expenses to average
net assets, excluding interest expense (2)
      1.27       1.21 %(4)(5)        1.25 %(4)(5)        1.34 %(5)        1.34 %(4)(5) 
Ratio of net investment income to average net assets (2)       7.55       7.17 %(4)        8.63 %(4)        9.21       10.15 %(4) 
Preferred shares asset coverage per share       $67,624          $70,398          $67,310          $59,689          $64,130   
Portfolio turnover rate       21       12       9       19       8

 

(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)   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.  
(4)   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% and 0.01% for the years ended April 30, 2013, April 30, 2012 and April 30, 2010, respectively.  
(5)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank (See note 1(k) in Notes to Financial Statements).  

 

See accompanying Notes to Financial Statements     |  April 30, 2014  |     Annual Report     47   


Table of Contents

Financial Highlights

PIMCO New York Municipal Income Fund

For a common share outstanding throughout each year:

 

        Year ended April 30,  
        2014         2013         2012         2011         2010  
Net asset value, beginning of year       $12.04            $11.38            $9.92            $10.67            $9.19   
Investment Operations:                              
Net investment income       0.67            0.70            0.74            0.80            0.88   
Net realized and change in unrealized gain (loss)       (0.82         0.66            1.41            (0.84         1.31   
Total from investment operations       (0.15         1.36            2.15            (0.04         2.19   
Dividends on Preferred Shares from Net Investment Income       (0.01         (0.02         (0.01         (0.03         (0.03
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations       (0.16         1.34            2.14            (0.07         2.16   
Dividends to Common Shareholders from Net Investment Income       (0.68         (0.68         (0.68         (0.68         (0.68
Net asset value, end of year       $11.20            $12.04            $11.38            $9.92            $10.67   
Market price, end of year       $11.36            $12.52            $11.73            $9.89            $11.18   
Total Investment Return (1)       (3.21 )%          12.96         26.36         (5.57 )%          20.76
RATIOS/SUPPLEMENTAL DATA:                              
Net assets, applicable to common shareholders, end of year (000s)       $86,211            $92,509            $87,126            $75,728            $81,074   
Ratio of expenses to average
net assets, including interest expense (2)(3)
      1.46         1.36 %(4)(5)          1.37 %(4)(5)          1.51 %(5)          1.52 %(4)(5) 
Ratio of expenses to average
net assets, excluding interest expense (2)
      1.40         1.30 %(4)(5)          1.31 %(4)(5)          1.42 %(5)          1.41 %(4)(5) 
Ratio of net investment income
to average net assets (2)
      6.28         5.89 %(4)          7.00 %(4)          7.70         8.71 %(4) 
Preferred shares asset coverage per share       $70,857            $74,203            $71,341            $65,279            $68,123   
Portfolio turnover rate       10         16         21         29         11

 

(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.