N-CSR
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-21077

PIMCO California Municipal Income Fund II

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

Trent W. Walker

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive, Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Registrant’s telephone number, including area code: (844) 337-4626

Date of fiscal year end: December 31

Date of reporting period: December 31, 2018

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

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.


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Item 1.       Reports to Shareholders.

The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1).


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LOGO

 

PIMCO CLOSED-END FUNDS

Annual Report

December 31, 2018

PIMCO Municipal Income Fund | PMF | NYSE

PIMCO Municipal Income Fund II | PML | NYSE

PIMCO Municipal Income Fund III | PMX | NYSE

PIMCO California Municipal Income Fund | PCQ | NYSE

PIMCO California Municipal Income Fund II | PCK | NYSE

PIMCO California Municipal Income Fund III | PZC | NYSE

PIMCO New York Municipal Income Fund | PNF | NYSE

PIMCO New York Municipal Income Fund II | PNI | NYSE

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website, pimco.com/literature, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by visiting pimco.com/edelivery or by contacting your financial intermediary, such as a broker-dealer or bank.

Beginning January 1, 2019, you may elect to receive all future reports in paper free of charge. If you own these shares through a financial intermediary, such as a broker-dealer or bank, you may contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by calling 844.337.4626. Your election to receive reports in paper will apply to all funds held with the fund complex if you invest directly with the Fund or to all funds held in your account if you invest through a financial intermediary, such as a broker-dealer or bank.


Table of Contents

Table of Contents

 

            Page  
     

Letter from the Chair of the Board & President

        2  

Important Information About the Funds

        4  

Financial Highlights

        18  

Statements of Assets and Liabilities

        22  

Statements of Operations

        24  

Statements of Changes in Net Assets

        26  

Statements of Cash Flows

        29  

Notes to Financial Statements

        60  

Report of Independent Registered Public Accounting Firm

        76  

Glossary

        77  

Annual Shareholder Meeting Results

        78  

Changes to Boards of Trustees

        80  

Investment Strategy Updates

        81  

Dividend Reinvestment Plan

        82  

Management of the Funds

        84  

Privacy Policy

        87  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PIMCO Municipal Income Fund

     9        31  

PIMCO Municipal Income Fund II

     10        36  

PIMCO Municipal Income Fund III

     11        41  

PIMCO California Municipal Income Fund

     12        46  

PIMCO California Municipal Income Fund II

     13        49  

PIMCO California Municipal Income Fund III

     14        52  

PIMCO New York Municipal Income Fund

     15        55  

PIMCO New York Municipal Income Fund II

     16        57  


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Letter from the Chair of the Board & President

 

Dear Shareholder,

Following this letter is the PIMCO Closed-End Funds Annual Report, which covers the 12-month reporting period ended December 31, 2018. On the subsequent pages you will find specific details regarding investment results and discussion of the factors that most affected performance during the reporting period.

For the 12-month reporting period ended December 31, 2018

The U.S. economy continued to expand during the reporting period. Looking back, U.S. gross domestic product (“GDP”) grew at an annual pace of 2.2% during the first quarter of 2018. During the second quarter of 2018, GDP growth rose to an annual pace of 4.2%, the strongest since the third quarter of 2014. GDP then expanded at an annual pace of 3.4% during the third quarter of the year. Finally, the Commerce Department’s initial reading for fourth-quarter 2018 GDP has been delayed due to the partial government shutdown.

The Federal Reserve (the “Fed”) continued to normalize monetary policy during the reporting period. During its meetings that concluded in March, June, September and December 2018, the Fed raised the federal funds rate in 0.25% increments. The Fed’s December rate hike pushed the federal funds rate to a range between 2.25% and 2.50%. In addition, the Fed continued to reduce its balance sheet during the reporting period.

Economic activity outside the U.S. initially accelerated during the reporting period, but moderated as it progressed. Against this backdrop, the European Central Bank (the “ECB”) and the Bank of Japan largely maintained their highly accommodative monetary policies, while other central banks took a more hawkish stance. The Bank of England raised rates at its meeting in August 2018 and the Bank of Canada raised rates twice during the reporting period. Meanwhile, the ECB ended its quantitative easing program in December 2018, but indicated that it does not expect to raise interest rates “at least through the summer of 2019.”

The U.S. Treasury yield curve flattened during the reporting period as short-term rates moved up more than longer-term rates. In our view, the increase in rates at the short end of the yield curve was mostly due to Fed interest rate increases. The yield on the benchmark 10-year U.S. Treasury note was 2.69% at the end of the reporting period, up from 2.40% on December 31, 2017. U.S. Treasuries, as measured by the Bloomberg Barclays U.S. Treasury Index, returned 0.86% over the 12 months ended December 31, 2018. Meanwhile, the Bloomberg Barclays U.S. Aggregate Bond Index, a widely used index of U.S. investment grade bonds, returned 0.01% over the period. Riskier fixed income asset classes, including high yield corporate bonds and emerging market debt, generated weak results versus the broad U.S. market. The ICE BofAML U.S. High Yield Index returned -2.27% over the reporting period, whereas emerging market external debt, as represented by the JPMorgan Emerging Markets Bond Index (EMBI) Global, returned -4.61% over the reporting period. Emerging market local bonds, as represented by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged), returned -6.21% over the period.

The municipal (or “muni”) market experienced periods of volatility during the reporting period. After declining over the first two months, the muni market posted positive returns during five of the next six months. The muni market then fell over the next two months, but finished strongly by rallying in November and December 2018. As was the case with the taxable U.S. bond market, munis were negatively impacted by rising interest rates, which tempered their gains during the year. All told, the Bloomberg Barclays Municipal Bond Index returned 1.28% during the 12 months ended December 31, 2018.

 

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Thank you for the assets you have placed with us. We deeply value your trust, and we will continue to work diligently to meet your broad investment needs. For any questions regarding your PIMCO Closed-End Funds investments, please contact your financial advisor, or call the Funds’ shareholder servicing agent at (844) 33-PIMCO. We also invite you to visit our website at pimco.com to learn more about our global viewpoints.

Sincerely,

 

LOGO

  LOGO

LOGO

  LOGO

Deborah A. DeCotis

  Peter G. Strelow
Chair of the Board of Trustees   President

Past performance is no guarantee of future results. Unless otherwise noted, index returns reflect the reinvestment of income distributions and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an unmanaged index.

 

  ANNUAL REPORT   DECEMBER 31, 2018   3


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Important Information About the Funds

 

We believe that bond funds have an important role to play in a well-diversified investment portfolio. It is important to note, however, that in an environment where interest rates may trend upward, rising rates would negatively impact the performance of most bond funds, and fixed-income securities and other instruments held by a Fund are likely to decrease in value. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). In addition, changes in interest rates can be sudden and unpredictable, and there is no guarantee that Fund management will anticipate such movement accurately. A Fund may lose money as a result of movement in interest rates.

As of the date of this report, interest rates in the U.S. and many parts of the world, including certain European countries, are at or near historically low levels. Thus, the Funds currently face a heightened level of interest rate risk, especially since the Federal Reserve Board has ended its quantitative easing program and has begun, and may continue, to raise interest rates. To the extent the Federal Reserve Board continues to raise interest rates, there is a risk that rates across the financial system may rise. Further, while bond markets have steadily grown over the past three decades, dealer inventories of corporate bonds are near historic lows in relation to market size. As a result, there has been a significant reduction in the ability of dealers to “make markets.” Bond funds and individual bonds with a longer duration (a measure used to determine the sensitivity of a security’s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. In addition, in the current low interest rate environment, the market price of the Funds’ common shares may be particularly sensitive to changes in interest rates or the perception that there will be a change in interest rates. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets or negatively impact a Fund’s performance or cause a Fund to incur losses.

Additionally, the United States presidential administration’s enforcement of tariffs on goods from other countries, with a focus on China, has contributed to international trade tensions and may impact portfolio securities.

Investing in the municipal bond market involves the risks of investing in debt securities generally and certain other risks. The amount of public information available about the municipal bonds in which a Fund may invest is generally less than that for corporate equities or bonds, and the investment performance of a Fund’s investment in municipal bonds may therefore be more dependent on the analytical abilities of PIMCO than its investments in taxable bonds. The secondary market for municipal bonds also tends to be less well-developed or liquid than

many other securities markets, which may adversely affect a Fund’s ability to sell its bonds at attractive prices.

The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns, by litigation, legislation or political events, or by the bankruptcy of the issuer. Laws, referenda, ordinances or regulations enacted in the future by Congress or state legislatures or the applicable governmental entity could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on the ability of municipal issuers to levy taxes. Issuers of municipal securities also might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, a Fund could experience delays in collecting principal and interest and the Fund may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, a Fund may take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.

A Fund that has substantial exposures to California municipal bonds may be affected significantly by economic, regulatory or political developments affecting the ability of California issuers to pay interest or repay principal. Certain issuers of California municipal bonds have experienced serious financial difficulties in the past and reoccurrence of these difficulties may impair the ability of certain California issuers to pay principal or interest on their obligations. Provisions of the California Constitution and State statutes that limit the taxing and spending authority of California governmental entities may impair the ability of California issuers to pay principal and/or interest on their obligations. While California’s economy is broad, it does have major concentrations in high technology, aerospace and defense-related manufacturing, trade, entertainment, real estate and financial services, and may be sensitive to economic problems affecting those industries. Future California political and economic developments, constitutional amendments, legislative measures, executive orders, administrative regulations, litigation and voter initiatives could have an adverse effect on the debt obligations of California issuers.

A Fund that has substantial exposures to New York municipal bonds may be affected significantly by economic, regulatory or political developments affecting the ability of New York issuers to pay interest or repay principal. While New York’s economy is broad, it does have concentrations in the financial services industry, and may be sensitive to economic problems affecting that industry. Certain issuers of New York municipal bonds have experienced serious financial difficulties in the past and reoccurrence of these difficulties may impair the ability of

 

 

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certain New York issuers to pay principal or interest on their obligations. The financial health of New York City affects that of the State, and when New York City experiences financial difficulty it may have an adverse effect on New York municipal bonds held by a Fund. The growth rate of New York has at times been somewhat slower than the nation overall. The economic and financial condition of New York also may be affected by various financial, social, economic and political factors.

The use of derivatives may subject the Funds to greater volatility than investments in traditional securities. The Funds may use derivative instruments for hedging purposes or as part of an investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, call risk, credit risk, leverage risk, management risk and the risk that a Fund may not be able to close out a position when it would be most advantageous to do so. Changes in regulation relating to a Fund’s use of derivatives and related instruments could potentially limit or impact a Fund’s ability to invest in derivatives, limit a Fund’s ability to employ certain strategies that use derivatives and/or adversely affect the value or performance of derivatives and the Fund. Certain derivative transactions may have a leveraging effect on a Fund. For example, a small investment in a derivative instrument may have a significant impact on a Fund’s exposure to interest rates, currency exchange rates or other investments. As a result, a relatively small price movement in an asset, instrument or component of the index underlying a derivative instrument may cause an immediate and substantial loss or gain, which translates into heightened volatility in a Fund’s net asset value (“NAV”). A Fund may engage in such transactions regardless of whether the Fund owns the asset, instrument or components of the index underlying the derivative instrument. A Fund may invest a significant portion of its assets in these types of instruments. If it does, a Fund’s investment exposure could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not own.

A Fund’s use of leverage creates the opportunity for increased income for the Fund’s common shareholders, but also creates special risks. Leverage is a speculative technique that may expose a Fund to greater risk and increased costs. If shorter-term interest rates rise relative to the rate of return on a Fund’s portfolio, the interest and other costs of leverage to the Fund could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to the Fund’s common shareholders. In addition, fees and expenses of any form of leverage used by a Fund will be borne entirely by its common shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Fund’s common shares. Moreover, to make payments of interest and other loan costs, the

Funds may be forced to sell portfolio securities when it is not otherwise advantageous to do so. In addition, because the fees received by PIMCO are based on the daily net asset value of the Funds (including any assets attributable to any preferred shares that may be outstanding), PIMCO has a financial incentive for the Funds to use certain forms of leverage, which may create a conflict of interest between PIMCO, on the one hand, and the Funds’ common shareholders, on the other hand. There can be no assurance that a Fund’s use of leverage will result in a higher yield on its common shares, and it may result in losses. Leverage creates several major types of risks for a Fund’s common shareholders, including (1) the likelihood of greater volatility of net asset value and market price of the Fund’s common shares, and of the investment return to the Fund’s common shareholders, than a comparable portfolio without leverage; (2) the possibility either that the Fund’s common share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on the Fund’s common shares will fluctuate because such costs vary over time; and (3) the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause a greater decline in the net asset value of the Fund’s common shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Fund’s common shares. Moreover, to make payments of interest and other loan costs, a Fund may be forced to sell portfolio securities when it is not otherwise advantageous to do so.

There is a risk that a Fund investing in a tender option bond program will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of, among other things, a credit rating downgrade, a payment default or a disqualification from tax-exempt status. A Fund’s investment in the securities issued by a tender option bond trust may involve greater risk and volatility than an investment in a fixed rate bond, and the value of such securities may decrease significantly when market interest rates increase. Tender option bond trusts could be terminated due to market, credit or other events beyond the Funds’ control, which could require the Funds to dispose of portfolio investments at inopportune times and prices. A Fund may use a tender option bond program as a way of achieving leverage in its portfolio, in which case the Fund will be subject to leverage risk.

High-yield bonds (commonly referred to as “junk bonds”) typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Further, markets for lower-rated bonds are typically less liquid than for higher-rated bonds, and public information is usually less abundant in markets for lower-rated bonds. Thus, high yield investments increase the chance

 

 

  ANNUAL REPORT   DECEMBER 31, 2018   5


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Important Information About the Funds (Cont.)

 

that a Fund will lose money. PIMCO does not rely solely on credit ratings, and develops its own analysis of issuer credit quality. A Fund may purchase unrated securities (which are not rated by a rating agency) if PIMCO determines that the security is of comparable quality to a rated security that a Fund may purchase. Unrated securities may be less liquid than comparable rated securities and involve the risk that PIMCO may not accurately evaluate the security’s comparative credit quality, which could result in a Fund’s portfolio having a higher level of credit and/or high yield risk than PIMCO has estimated or desires for the Fund, and could negatively impact the Fund’s performance and/or returns. Certain Funds may invest a substantial portion of their assets in unrated securities and therefore may be particularly subject to the associated risks. Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher-quality debt obligations. To the extent that a Fund invests in high yield and/or unrated securities, the Fund’s success in achieving its investment objectives may depend more heavily on the portfolio manager’s creditworthiness analysis than if the Fund invested exclusively in higher-quality and rated securities. The Funds may 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 obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Defaulted securities are often illiquid and may not be actively traded. Sales 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.

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.

As the use of technology has become more prevalent in the course of business, the Funds have become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and

unintentional cyber events that may, among other things, cause a Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations. Cyber security breaches may involve unauthorized access to a Fund’s digital information systems (e.g., through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e., efforts to make network services unavailable to intended users). In addition, cyber security breaches involving a Fund’s third party service providers (including but not limited to advisers, sub-advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties or issuers in which a Fund invests can also subject a Fund to many of the same risks associated with direct cyber security breaches. Moreover, cyber security breaches involving trading counterparties or issuers in which a Fund invests could adversely impact such counterparties or issuers and cause the Fund’s investment to lose value.

Cyber security failures or breaches may result in financial losses to a Fund and its shareholders. These failures or breaches may also result in disruptions to business operations, potentially resulting in financial losses; interference with a Fund’s ability to calculate its net asset value, process shareholder transactions or otherwise transact business with shareholders; impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement or other compensation costs; additional compliance and cyber security risk management costs and other adverse consequences. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.

Like with operational risk in general, the Funds have established business continuity plans and risk management systems designed to reduce the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee that such efforts will succeed, especially because the Funds do not directly control the cyber security systems of issuers in which a Fund may invest, trading counterparties or third party service providers to the Funds. There is also a risk that cyber security breaches may not be detected. The Funds and their shareholders could be negatively impacted as a result.

The common shares of the Funds trade on the New York Stock Exchange. As with any stock, the price of a Fund’s common shares will fluctuate with market conditions and other factors. If you sell your common shares of a Fund, the price received may be more or less than your original investment.

 

 

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Shares of closed-end investment management companies, such as the Funds, frequently trade at a discount from their net asset value and may trade at a price that is less than the initial offering price of such shares. Further, if a Fund’s shares trade at a price that is more than the initial offering price and/or the net asset value of such shares, including at a substantial premium and/or for an extended period of time, there is no assurance that any such premium will be sustained for any period of time and will not decrease, or that the shares will not trade at a discount to net asset value thereafter.

The Funds may be subject to various risks, including, but not limited to, the following: asset allocation risk, credit risk, stressed securities risk, distressed and defaulted securities risk, corporate bond risk, high yield risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, extension risk, prepayment risk, privately issued mortgage-related securities risk, mortgage market/ subprime risk, currency risk, redenomination risk, non-diversification risk, management risk, municipal bond risk, tender option bond risk, inflation-indexed security risk, senior debt risk, loans, participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, foreign (non-U.S.) government securities risk, valuation risk, segregation and cover risk, focused investment risk, credit default swaps risk, event-linked securities risk, counterparty risk, preferred securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory risk, tax risk, recent economic conditions risk, market disruptions and geopolitical risk, potential conflicts of interest involving allocation of investment opportunities, repurchase agreements risk, securities lending risk, zero-coupon bond and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk and convertible securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this report.

On each Fund Summary page in this Shareholder Report, the Average Annual Total Return table measures performance assuming that all dividend and capital gain distributions were reinvested. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions. 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 tend to reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about a Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends. Performance shown is net of fees and expenses.

The following table discloses the commencement of operations and diversification status of each Fund:

 

Fund Name         Commencement
of Operations
    Diversification
Status

PIMCO Municipal Income Fund

      06/29/01     Diversified

PIMCO Municipal Income Fund II

      06/28/02     Diversified

PIMCO Municipal Income Fund III

      10/31/02     Diversified

PIMCO California Municipal Income Fund

      06/29/01     Diversified

PIMCO California Municipal Income Fund II

      06/28/02     Diversified

PIMCO California Municipal Income Fund III

      10/31/02     Diversified

PIMCO New York Municipal Income Fund

      06/29/01     Non-diversified

PIMCO New York Municipal Income Fund II

      06/28/02     Non-diversified

An investment in a Fund is not a deposit of a bank and is not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency. It is possible to lose money on investments in the Funds.

The Trustees are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with the Investment Manager and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s original or any subsequent prospectus or Statement of Additional Information (SAI), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings from or on behalf of a Fund creates a contract between or among any shareholders of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand. The Trustees (or the Funds and their officers, service providers or other delegates acting under authority of the Trustees) may amend its most recent or use a new prospectus or SAI with respect to a Fund, adopt and disclose new or amended policies and other changes in press releases and shareholder reports and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement was specifically disclosed in a Fund’s prospectus, SAI or shareholder report and is otherwise still in effect.

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940. The Proxy Policy has been adopted by the Funds

 

 

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Important Information About the Funds (Cont.)

 

as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures that PIMCO uses to vote proxies relating to portfolio securities of each Fund, and information about how each Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, are available without charge, upon request, by calling the Funds at (844) 33-PIMCO, on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

Each Fund files a complete schedule of its portfolio holdings with the SEC for the first and third quarters of its fiscal year on Form N-Q. A copy of each Fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and is available without charge, upon request by calling the Funds at (844) 33-PIMCO and on the Funds’ website at www.pimco.com.

The SEC adopted a rule that, beginning in 2021, will generally allow funds to fulfill their obligation to deliver shareholder reports to investors by providing access to such reports online free of charge and by mailing a notice that the report is electronically available. Pursuant to the rule, investors may still elect to receive a complete shareholder report in the mail. Instructions for electing to receive paper copies of a Fund’s shareholder reports going forward may be found on the front cover of this report.

 

 

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PIMCO Municipal Income Fund

 

  Symbol on NYSE - PMF

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Health, Hospital & Nursing Home Revenue

    24.2%  

Highway Revenue Tolls

    10.0%  

Tobacco Settlement Funded

    7.1%  

Natural Gas Revenue

    6.2%  

Ad Valorem Property Tax

    5.9%  

Miscellaneous Revenue

    5.6%  

Electric Power & Light Revenue

    5.0%  

Sales Tax Revenue

    4.1%  

College & University Revenue

    3.9%  

Industrial Revenue

    3.7%  

Port, Airport & Marina Revenue

    3.5%  

Special Assessment

    3.1%  

Miscellaneous Taxes

    2.8%  

Sewer Revenue

    2.6%  

Income Tax Revenue

    2.3%  

General Fund

    1.8%  

Appropriations

    1.6%  

Water Revenue

    1.5%  

Nuclear Revenue

    1.1%  

Other

    3.4%  

Short-Term Instruments

    0.6%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $12.55  

NAV

    $12.36  

Premium/(Discount) to NAV

    1.54%  

Market Price Distribution rate(2)

    5.71%  

NAV Distribution rate(2)

    5.79%  

Total Effective Leverage(3)

    47%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/29/01)
 
Market Price     2.22%       7.14%       12.68%       5.95%  
NAV     1.72%       8.43%       12.56%       6.67%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO Municipal Income Fund’s investment objective is to seek to provide current income exempt from federal income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Select exposure within the revenue segment contributed to performance.

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Select exposure within the special tax sector contributed to performance.

 

»  

Duration positioning detracted from performance, as municipal yields rose.

 

»  

Exposure to the electric utility sector detracted from performance, as the sector underperformed the general municipal market.

 

»  

Lack of exposure to the housing sector detracted from performance, as the sector outperformed the general municipal market.

 

  ANNUAL REPORT   DECEMBER 31, 2018   9


Table of Contents

PIMCO Municipal Income Fund II

 

  Symbol on NYSE - PML

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Health, Hospital & Nursing Home Revenue

    22.2%  

Highway Revenue Tolls

    9.1%  

Tobacco Settlement Funded

    8.8%  

Ad Valorem Property Tax

    6.1%  

Natural Gas Revenue

    6.0%  

Electric Power & Light Revenue

    5.1%  

Industrial Revenue

    5.1%  

College & University Revenue

    4.7%  

Miscellaneous Taxes

    4.5%  

Miscellaneous Revenue

    4.3%  

Sales Tax Revenue

    4.0%  

Sewer Revenue

    3.6%  

Income Tax Revenue

    2.0%  

General Fund

    1.7%  

Appropriations

    1.4%  

Port, Airport & Marina Revenue

    1.2%  

Water Revenue

    1.1%  

Transit Revenue

    1.0%  

Other

    5.5%  

Short-Term Instruments

    2.6%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $13.31  

NAV

    $11.62  

Premium/(Discount) to NAV

    14.54%  

Market Price Distribution rate(2)

    5.86%  

NAV Distribution rate(2)

    6.71%  

Total Effective Leverage(3)

    48%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/28/02)
 
Market Price     7.57%       11.40%       14.66%       6.14%  
NAV     2.38%       8.23%       12.52%       5.61%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO Municipal Income Fund II’s investment objective is to seek to provide current income exempt from federal income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Select exposure to the revenue segment contributed to performance.

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Select exposure to the special tax sector contributed to performance.

 

»  

The Fund’s duration exposure detracted from performance, as municipal yields moved higher.

 

»  

Exposure to the electric utility sector detracted from performance, as the sector underperformed the broader municipal market.

 

»  

Lack of exposure to the housing sector detracted from performance, as the sector outperformed the broader municipal market.

 

10   PIMCO CLOSED-END FUNDS     


Table of Contents

PIMCO Municipal Income Fund III

 

  Symbol on NYSE - PMX

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Health, Hospital & Nursing Home Revenue

    22.0%  

Tobacco Settlement Funded

    9.8%  

Highway Revenue Tolls

    7.8%  

College & University Revenue

    6.0%  

Ad Valorem Property Tax

    5.9%  

Natural Gas Revenue

    5.8%  

Electric Power & Light Revenue

    5.1%  

Sewer Revenue

    3.9%  

Miscellaneous Revenue

    3.9%  

General Fund

    3.3%  

Industrial Revenue

    3.3%  

Recreational Revenue

    3.3%  

Sales Tax Revenue

    3.3%  

Income Tax Revenue

    2.9%  

Port, Airport & Marina Revenue

    2.2%  

Appropriations

    2.1%  

Water Revenue

    2.0%  

Transit Revenue

    1.4%  

Nuclear Revenue

    1.1%  

Other

    4.6%  

Short-Term Instruments

    0.3%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $11.14  

NAV

    $10.49  

Premium/(Discount) to NAV

    6.20%  

Market Price Distribution rate(2)

    6.01%  

NAV Distribution rate(2)

    6.38%  

Total Effective Leverage(3)

    47%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(10/31/02)
 
Market Price     3.39%       9.30%       13.80%       5.32%  
NAV     2.04%       9.48%       12.30%       5.45%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO Municipal Income Fund III’s investment objective is to seek to provide current income exempt from federal income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Select exposure within the revenue segment contributed to performance.

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Exposure to the tobacco sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Duration positioning detracted from performance, as municipal yields rose over the period.

 

»  

Exposure to the electric utility sector detracted from performance, as the sector underperformed the general municipal market.

 

»  

Lack of exposure to the housing sector detracted from performance, as the sector underperformed the general municipal market.

 

  ANNUAL REPORT   DECEMBER 31, 2018   11


Table of Contents

PIMCO California Municipal Income Fund

 

  Symbol on NYSE - PCQ

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Ad Valorem Property Tax

    23.8%  

Health, Hospital & Nursing Home Revenue

    22.7%  

Electric Power & Light Revenue

    8.6%  

College & University Revenue

    8.1%  

Lease (Abatement)

    7.8%  

Tobacco Settlement Funded

    6.8%  

Natural Gas Revenue

    5.7%  

Local or Guaranteed Housing

    2.9%  

Water Revenue

    2.0%  

General Fund

    1.9%  

Port, Airport & Marina Revenue

    1.7%  

Transit Revenue

    1.3%  

Sewer Revenue

    1.2%  

Hotel Occupancy Tax

    1.2%  

Special Assessment

    1.0%  

Other

    3.2%  

Short-Term Instruments

    0.1%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $16.15  

NAV

    $13.32  

Premium/(Discount) to NAV

    21.25%  

Market Price Distribution rate(2)

    5.72%  

NAV Distribution rate(2)

    6.94%  

Total Effective Leverage(3)

    49%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/29/01)
 
Market Price     (0.66)%       11.03%       13.79%       7.17%  
NAV     0.42%       7.76%       11.04%       6.55%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO California Municipal Income Fund’s investment objective is to seek to provide current income exempt from federal and California income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Exposure to the tobacco sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Exposure to the lease-backed sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Duration positioning detracted from performance, as municipal yields rose.

 

»  

Exposure to the industrial revenue sector detracted from performance, as the sector underperformed the general municipal market.

 

»  

Exposure to the education sector detracted from performance, as the sector underperformed the general municipal market.

 

12   PIMCO CLOSED-END FUNDS     


Table of Contents

PIMCO California Municipal Income Fund II

 

  Symbol on NYSE - PCK

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Ad Valorem Property Tax

    29.2%  

Health, Hospital & Nursing Home Revenue

    18.6%  

Natural Gas Revenue

    6.9%  

General Fund

    6.7%  

Electric Power & Light Revenue

    6.3%  

Tobacco Settlement Funded

    5.3%  

Sewer Revenue

    3.7%  

Lease (Abatement)

    3.2%  

Tax Increment/Allocation Revenue

    3.0%  

Port, Airport & Marina Revenue

    3.0%  

College & University Revenue

    2.7%  

Local or Guaranteed Housing

    2.5%  

Highway Revenue Tolls

    1.9%  

Special Tax

    1.3%  

Hotel Occupancy Tax

    1.1%  

Special Assessment

    1.0%  

Other

    2.9%  

Short-Term Instruments

    0.7%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $7.83  

NAV

    $8.29  

Premium/(Discount) to NAV

    (5.55)%  

Market Price Distribution rate(2)

    5.36%  

NAV Distribution rate(2)

    5.07%  

Total Effective Leverage(3)

    47%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/28/02)
 
Market Price     (19.01)%       3.56%       10.36%       3.14%  
NAV     0.32%       8.83%       11.20%       4.28%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO California Municipal Income Fund II’s investment objective is to seek to provide current income exempt from federal and California income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Exposure to the general obligation segment contributed to performance, as the segment outperformed the broader municipal market.

 

»  

Select exposure to the special tax sector contributed to performance.

 

»  

The Fund’s duration exposure detracted from performance, as municipal yields moved higher.

 

»  

Exposure to the industrial revenue sector detracted from performance, as the sector underperformed the broader municipal market.

 

»  

Exposure to the education sector detracted from performance, as the sector underperformed the broader municipal market.

 

  ANNUAL REPORT   DECEMBER 31, 2018   13


Table of Contents

PIMCO California Municipal Income Fund III

 

  Symbol on NYSE - PZC

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

Health, Hospital & Nursing Home Revenue

    24.4%  

Ad Valorem Property Tax

    22.8%  

College & University Revenue

    8.6%  

Tobacco Settlement Funded

    7.6%  

Electric Power & Light Revenue

    6.5%  

Natural Gas Revenue

    4.7%  

Water Revenue

    4.3%  

General Fund

    2.8%  

Highway Revenue Tolls

    2.7%  

Lease (Abatement)

    2.5%  

Port, Airport & Marina Revenue

    2.4%  

Sewer Revenue

    2.1%  

Local or Guaranteed Housing

    1.8%  

Special Tax

    1.6%  

Transit Revenue

    1.2%  

Special Assessment

    1.0%  

Other

    3.0%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $9.53  

NAV

    $9.46  

Premium/(Discount) to NAV

    0.74%  

Market Price Distribution rate(2)

    5.67%  

NAV Distribution rate(2)

    5.71%  

Total Effective Leverage(3)

    48%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018

 
    1 Year     5 Year     10 Year     Commencement
of Operations
(10/31/02)
 
Market Price     (3.49)%       7.30%       12.16%       4.02%  
NAV     0.29%       8.17%       11.10%       4.45%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions.Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO California Municipal Income Fund III’s investment objective is to seek to provide current income exempt from federal and California income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Exposure to the tobacco sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Exposure to the pre-refunded sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Duration positioning detracted from performance, as municipal yields rose over the period.

 

»  

Exposure to the industrial revenue sector detracted from performance, as the sector underperformed the general municipal market.

 

»  

Select exposure within the healthcare sector detracted from performance.

 

14   PIMCO CLOSED-END FUNDS     


Table of Contents

PIMCO New York Municipal Income Fund

 

  Symbol on NYSE - PNF

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

College & University Revenue

    11.6%  

Industrial Revenue

    10.8%  

Tobacco Settlement Funded

    10.0%  

Health, Hospital & Nursing Home Revenue

    9.8%  

Ad Valorem Property Tax

    9.2%  

Transit Revenue

    8.6%  

Water Revenue

    7.6%  

Miscellaneous Revenue

    7.6%  

Miscellaneous Taxes

    5.0%  

Income Tax Revenue

    4.7%  

Highway Revenue Tolls

    3.8%  

Electric Power & Light Revenue

    3.8%  

Port, Airport & Marina Revenue

    3.2%  

Recreational Revenue

    2.1%  

Other

    1.7%  

Short-Term Instruments

    0.5%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $11.70  

NAV

    $11.29  

Premium/(Discount) to NAV

    3.63%  

Market Price Distribution rate(2)

    5.85%  

NAV Distribution rate(2)

    6.06%  

Total Effective Leverage(3)

    43%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/29/01)
 
Market Price     (2.90)%       9.00%       12.11%       4.81%  
NAV     (0.66)%       7.84%       10.25%       4.91%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO New York Municipal Income Fund’s investment objective is to seek to provide current income exempt from federal, New York State and New York City income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Exposure to pre-refunded debt contributed to performance, as the sector outperformed the general municipal market.

 

»  

Exposure to the healthcare sector contributed to performance, as the sector outperformed the general municipal market.

 

»  

Duration positioning detracted from performance, as municipal yields rose.

 

»  

Exposure to the transportation sector detracted from performance, as the sector underperformed the general municipal market.

 

»  

Lack of exposure to the housing sector detracted from performance, as the sector outperformed the general municipal market.

 

  ANNUAL REPORT   DECEMBER 31, 2018   15


Table of Contents

PIMCO New York Municipal Income Fund II

 

  Symbol on NYSE - PNI

 

Allocation Breakdown as of 12/31/2018§

 

Municipal Bonds & Notes

 

College & University Revenue

    12.9%  

Tobacco Settlement Funded

    10.5%  

Health, Hospital & Nursing Home Revenue

    9.9%  

Port, Airport & Marina Revenue

    7.9%  

Water Revenue

    7.1%  

Miscellaneous Revenue

    6.9%  

Income Tax Revenue

    6.7%  

Industrial Revenue

    6.3%  

Miscellaneous Taxes

    4.4%  

Ad Valorem Property Tax

    4.3%  

Lease (Abatement)

    4.3%  

Electric Power & Light Revenue

    3.7%  

Recreational Revenue

    3.4%  

Transit Revenue

    2.9%  

Sales Tax Revenue

    1.9%  

Highway Revenue Tolls

    1.7%  

Other

    2.8%  

Short-Term Instruments

    2.4%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of December 31, 2018)(1)

 

Market Price

    $10.47  

NAV

    $10.67  

Premium/(Discount) to NAV

    (1.87)%  

Market Price Distribution rate(2)

    5.81%  

NAV Distribution rate(2)

    5.70%  

Total Effective Leverage(3)

    47%  
 

 

Average Annual Total Return(1) for the period ended December 31, 2018  
    1 Year     5 Year     10 Year     Commencement
of Operations
(06/28/02)
 
Market Price     (7.67)%       6.96%       11.32%       4.50%  
NAV     1.09%       8.38%       10.58%       5.07%  

All Fund returns are net of fees and expenses.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (“ROC”) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of auction rate and variable rate munifund term preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

PIMCO New York Municipal Income Fund II’s investment objective is to seek to provide current income exempt from federal, New York State and New York City income tax.

Fund Insights at NAV

The following affected performance during the reporting period:

 

»  

Auction-rate preferred shares tendered at a discount contributed to performance.

 

»  

Select exposure to the revenue segment contributed to performance.

 

»  

Select exposure to the special tax sector contributed to performance.

 

»  

The Fund’s duration exposure detracted from performance, as municipal yields moved higher.

 

»  

Exposure to the transportation sector detracted from performance, as the sector underperformed the broader municipal market.

 

»  

Exposure to the electric utility sector detracted from performance, as the sector underperformed the broader municipal market.

 

16   PIMCO CLOSED-END FUNDS     


Table of Contents

 

 

(THIS PAGE INTENTIONALLY LEFT BLANK)

 

  ANNUAL REPORT   DECEMBER 31, 2018   17


Table of Contents

Financial Highlights

 

          Investment Operations     Less Distributions to
ARPS(b)
          Less Distributions to Common Shareholders(c)        
                                                                   
Selected Per Share Data for the Year
or Period Ended^:
  Net Asset
Value
Beginning
of Year
or Period
    Net
Investment
Income(a)
    Net
Realized/
Unrealized
Gain (Loss)
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Net Increase
(Decrease)
in Net Assets
Applicable
to Common
Shareholders
Resulting
from
Operations
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total     Increase
Resulting from
Tender of
ARPS(b)
 

PIMCO Municipal Income Fund

                     

12/31/2018

  $ 12.87     $ 0.89     $ (0.65   $ (0.16   $ 0.00     $ 0.08     $ (0.72   $ 0.00     $ 0.00     $ (0.72   $ 0.13  

12/31/2017

    12.44       0.91       0.36       (0.10     0.00       1.17       (0.74     0.00       0.00       (0.74     0.00  

12/31/2016

    13.26       0.90       (0.68     (0.06     0.00       0.16       (0.98     0.00       0.00       (0.98     0.00  

05/01/2015 -  12/31/2015(g)

    13.15       0.65       0.12       (0.01     0.00       0.76       (0.65     0.00       0.00       (0.65 )(j)      0.00  

04/30/2015

    12.57       0.93       0.64       (0.01     0.00       1.56       (0.98     0.00       0.00       (0.98     0.00  

04/30/2014

    13.75       0.94       (1.13     (0.01     0.00       (0.20     (0.98     0.00       0.00       (0.98     0.00  

PIMCO Municipal Income Fund II

                     

12/31/2018

  $   12.13     $   0.81     $ (0.57   $ (0.13   $ 0.00     $ 0.11     $ (0.78   $ 0.00     $ 0.00     $ (0.78   $ 0.16  

12/31/2017

    11.81       0.81       0.37       (0.08     0.00       1.10       (0.78     0.00       0.00       (0.78     0.00  

12/31/2016

    12.39       0.79       (0.55     (0.04     0.00       0.20       (0.78     0.00       0.00       (0.78     0.00  

06/01/2015 - 12/31/2015(h)

    12.11       0.47       0.28       (0.01     0.00       0.74       (0.46     0.00       0.00       (0.46 )(j)      0.00  

05/31/2015

    11.94       0.81       0.15       (0.01     0.00       0.95       (0.78     0.00       0.00       (0.78     0.00  

05/31/2014

    12.17       0.81       (0.25     (0.01     0.00       0.55       (0.78     0.00       0.00       (0.78     0.00  

PIMCO Municipal Income Fund III

                     

12/31/2018

  $ 11.06     $ 0.76     $ (0.57   $ (0.13   $ 0.00     $ 0.06     $ (0.67   $   (0.11   $ 0.00     $ (0.78   $ 0.15  

12/31/2017

    10.67       0.77       0.38       (0.08     0.00       1.07       (0.68     0.00       0.00       (0.68     0.00  

12/31/2016

    11.13       0.77       (0.44     (0.04     0.00       0.29       (0.75     0.00       0.00       (0.75     0.00  

10/01/2015 - 12/31/2015(i)

    10.88       0.20       0.24       (0.00     0.00       0.44       (0.19     0.00       0.00       (0.19 )(j)      0.00  

09/30/2016

    10.78       0.78       0.08       (0.01     0.00       0.85       (0.75     0.00       0.00       (0.75     0.00  

09/30/2015

    9.58       0.75       1.25       (0.01     0.00       1.99       (0.79     0.00       0.00       (0.79     0.00  

PIMCO California Municipal Income Fund

                     

12/31/2018

  $ 14.20     $ 0.92     $ (0.94   $ (0.17   $ 0.00     $ (0.19   $ (0.92   $ 0.00     $ 0.00     $ (0.92   $ 0.23  

12/31/2017

    13.83       0.97       0.43       (0.11     0.00       1.29       (0.92     0.00       0.00       (0.92     0.00  

12/31/2016

    14.61       0.95       (0.75     (0.06     0.00       0.14       (0.92     0.00       0.00       (0.92     0.00  

05/01/2015 - 12/31/2015(g)

    14.33       0.65       0.26       (0.01     0.00       0.90       (0.62     0.00       0.00       (0.62 )(j)      0.00  

04/30/2015

    13.77       0.95       0.54       (0.01     0.00       1.48       (0.92     0.00       0.00       (0.92     0.00  

04/30/2014

    14.71       0.99       (1.00     (0.01     0.00       (0.02     (0.92     0.00       0.00       (0.92     0.00  

PIMCO California Municipal Income Fund II

                     

12/31/2018

  $ 8.69     $ 0.54     $ (0.57   $ (0.11   $ 0.00     $ (0.14   $ (0.42   $ 0.00     $ 0.00     $ (0.42   $ 0.16  

12/31/2017

    8.39       0.60       0.34       (0.07     0.00       0.87       (0.56     0.00         (0.01       (0.57       0.00  

12/31/2016

    8.95       0.62       (0.53     (0.04     0.00       0.05       (0.61     0.00       0.00       (0.61     0.00  

06/01/2015 - 12/31/2015(h)

    8.69       0.38       0.27       (0.01     0.00       0.64       (0.38     0.00       0.00       (0.38 )(j)      0.00  

05/31/2015

    8.61       0.66       0.08       (0.01     0.00       0.73       (0.65     0.00       0.00       (0.65     0.00  

05/31/2014

    8.93       0.68       (0.26     (0.01     0.00       0.41       (0.66     0.00       (0.07     (0.73     0.00  

PIMCO California Municipal Income Fund III

                     

12/31/2018

  $ 9.98     $ 0.64     $ (0.68   $ (0.12   $ 0.00     $ (0.16   $ (0.54   $ 0.00     $ 0.00     $ (0.54   $ 0.18  

12/31/2017

    9.67       0.67       0.35       (0.08     0.00       0.94       (0.63     0.00       0.00       (0.63     0.00  

12/31/2016

    10.31       0.65       (0.53     (0.04     0.00       0.08       (0.72     0.00       0.00       (0.72     0.00  

10/01/2015 - 12/31/2015(i)

    10.08       0.17       0.24       (0.00     0.00       0.41       (0.18     0.00       0.00       (0.18 )(j)      0.00  

09/30/2016

    10.02       0.68       0.11       (0.01     0.00       0.78       (0.72     0.00       0.00       (0.72     0.00  

09/30/2015

    9.09       0.69       0.97       (0.01     0.00       1.65       (0.72     0.00       0.00       (0.72     0.00  

PIMCO New York Municipal Income Fund

                     

12/31/2018

  $ 12.06     $ 0.70     $   (0.77   $   (0.13   $   0.00     $   (0.20   $   (0.68   $ 0.00     $ 0.00     $ (0.68   $ 0.11  

12/31/2017

    11.62       0.69       0.51       (0.08     0.00       1.12       (0.68     0.00       0.00       (0.68     0.00  

12/31/2016

    12.10       0.70       (0.45     (0.05     0.00       0.20       (0.68     0.00       0.00       (0.68     0.00  

05/01/2015 -  12/31/2015(g)

    11.92       0.47       0.18       (0.01     0.00       0.64       (0.46     0.00       0.00       (0.46 )(j)      0.00  

04/31/2015

    11.20       0.68       0.73       (0.01     0.00       1.40       (0.68     0.00       0.00       (0.68     0.00  

04/31/2014

    12.04       0.67       (0.82     (0.01     0.00       (0.16     (0.68     0.00       0.00       (0.68     0.00  

 

18   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Table of Contents
    
Common Share
    Ratios/Supplemental Data  
                        Ratios to Average Net Assets Applicable to Common Shareholders                    
Net Asset
Value End of
Year or
Period
    Market Price
End of Year
or Period
    Total
Investment
Return(d)
    Net Assets
Applicable
to Common
Shareholders
(000s)
    Expenses(e)(f)     Expenses
Excluding
Waivers(e)(f)
    Expenses
Excluding
Interest
Expense(e)
        
    
    
Expenses
Excluding
Interest
Expense
and
Waivers(e)
    Net
Investment
Income (Loss)(e)
    ARPS
Asset
Coverage
Per Share(b)
    VMTP
Asset Coverage
Per Share**
    Portfolio
Turnover
Rate
 
 

    

    

 

 

                     
$   12.36     $   12.55       2.22   $   318,313       1.77     1.77     1.23     1.23     7.16   $   66,868     $   267,440       24
  12.87       13.00       (4.44     330,523       1.37       1.37       1.21       1.21       7.16       68,475       N/A       12  
  12.44       14.39       (0.71     318,473       1.25       1.25       1.18       1.18       6.72       66,896       N/A       16  
  13.26       15.45       5.27       338,342       1.22     1.22     1.21     1.21     7.42     69,516       N/A       15  
  13.15       15.38       21.47       334,775       1.25       1.25       1.22       1.22       7.12       69,049       N/A       9  
  12.57       13.58       (8.45     319,155       1.30       1.30       1.27       1.27       7.74       66,993       N/A       15  
 

    

    

 

 

                     
$ 11.62     $ 13.31       7.57   $ 723,713       1.93     1.93     1.13     1.13     6.94   $ 74,285     $ 297,110       23
  12.13       13.18       14.85       751,337       1.30       1.30       1.10       1.10       6.74       76,136       N/A       12  
  11.81       12.22       3.90       727,513       1.16       1.16       1.08       1.08       6.27       74,548       N/A       12  
  12.39       12.51       6.56       760,212       1.11     1.11     1.10     1.10     6.57     76,782       N/A       10  
  12.11       12.19       6.15       742,133       1.16       1.16       1.11       1.11       6.65       75,553       N/A       10  
  11.94       12.25       7.76       730,088       1.21       1.21       1.16       1.16       7.22       74,733       N/A       16  
 

    

    

 

 

                     
$ 10.49     $ 11.14       3.39   $ 345,557       1.89     1.89     1.19     1.19     7.11   $ 70,693     $ 282,740       25
  11.06       11.58       8.19       363,063       1.39       1.39       1.19       1.19       7.07       73,007       N/A       14  
  10.67       11.37       5.33       349,423       1.23       1.23       1.13       1.13       6.80       71,211       N/A       9  
  11.13       11.51       6.70       363,382       1.19     1.19     1.17     1.17     7.09     73,123       N/A       2  
  10.88       10.97       9.65       355,368       1.23       1.23       1.17       1.17       7.14       72,006       N/A       5  
  10.78       10.71       10.69       351,139       1.29       1.29       1.23       1.23       7.47       71,447       N/A       15  
 

    

    

 

 

                     
$ 13.32     $ 16.15       (0.66 )%    $ 250,306       2.10     2.10     1.23     1.23     6.80   $ 66,725     $ 266,870       29
  14.20       17.28       16.74       266,019       1.60       1.60       1.21       1.21       6.86       69,320       N/A       13  
  13.83       15.68       5.96       258,476       1.29       1.29       1.17       1.17       6.49       68,070       N/A       15  
  14.61       15.70       4.60       272,345       1.24     1.24     1.21     1.21     6.76     70,388       N/A       13  
  14.33       15.66       16.08       266,838       1.32       1.32       1.22       1.22       6.67       69,473       N/A       11  
  13.77       14.38       0.61       255,751       1.36       1.36       1.27       1.27       7.55       67,624       N/A       21  
 

    

    

 

 

                     
$ 8.29     $ 7.83       (19.01 )%    $ 265,245       1.88     1.88     1.29     1.29     6.51   $ 65,675     $ 262,670       37
  8.69       10.17       17.31       277,787       1.49       1.49       1.24       1.24       6.94       67,590       N/A       14  
  8.39       9.20       (1.58     267,645       1.37       1.37       1.22       1.22       6.84       66,042       N/A       20  
  8.95       9.94       6.19       285,097       1.25     1.25     1.23     1.23     7.42     68,724       N/A       10  
  8.69       9.75       9.85       276,525       1.32       1.32       1.21       1.21       7.48       67,411       N/A       12  
  8.61       9.52       (1.76     273,289       1.41       1.41       1.30       1.30       8.51       66,915       N/A       14  
 

    

    

 

 

                     
$ 9.46     $ 9.53       (3.49 )%    $ 210,974       2.13     2.13     1.25     1.25     6.70   $ 67,188     $ 268,720       21
  9.98       10.44       (2.46     221,976       1.65       1.65       1.23       1.23       6.77       69,379       N/A       9  
  9.67       11.34       1.27       214,646       1.33       1.33       1.19       1.19       6.31       67,922       N/A       15  
  10.31       11.92       10.76       228,221       1.25     1.25     1.21     1.21     6.44     70,641       N/A       2  
  10.08       10.94       12.80       223,030       1.30       1.30       1.21       1.21       6.68       69,605       N/A       24  
  10.02       10.40       19.73       221,415       1.37       1.37       1.26       1.26       7.29       69,282       N/A       11  
 

    

    

 

 

                     
$ 11.29     $ 11.70       (2.90 )%    $ 87,913       1.81     1.81     1.27     1.27     6.11   $ 78,545       N/A       22
  12.06       12.78       13.44       93,564       1.55       1.55       1.30       1.30       5.73       74,749       N/A       22  
  11.62       11.91       5.71       89,825       1.36       1.36       1.25       1.25       5.69       72,769       N/A       10  
  12.10       11.90       7.23       93,205       1.27     1.27     1.26     1.26     5.82     74,574       N/A       5  
  11.92       11.54       7.72       91,832       1.39       1.39       1.31       1.31       5.78       73,847       N/A       1  
  11.20       11.36       (3.21     86,211       1.46       1.46       1.40       1.40       6.28       70,857       N/A       10  

 

  ANNUAL REPORT   DECEMBER 31, 2018   19


Table of Contents

Financial Highlights (Cont.)

 

          Investment Operations     Less Distributions to
ARPS(b)
          Less Distributions to Common Shareholders(c)        
                                                                   
Selected Per Share Data for the Year
or Period Ended^:
  Net Asset
Value
Beginning
of Year
or Period
    Net
Investment
Income(a)
    Net
Realized/
Unrealized
Gain (Loss)
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Net Increase
(Decrease)
in Net Assets
Applicable
to Common
Shareholders
Resulting
from
Operations
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total     Increase
Resulting from
Tender of
ARPS(b)
 

PIMCO New York Municipal Income Fund II

                     

12/31/2018

  $   11.17     $   0.71     $   (0.73   $   (0.15   $   0.00     $   (0.17   $   (0.57   $   0.00     $ (0.04   $ (0.61   $ 0.28  

12/31/2017

    10.71       0.72       0.46       (0.10     0.00       1.08       (0.60     0.00         (0.02       (0.62       0.00  

12/31/2016

    11.41       0.72       (0.57     (0.05     0.00       0.10       (0.76     0.00       (0.04     (0.80     0.00  

06/01/2015 - 12/31/2015(h)

    11.28       0.43       0.17       (0.01     0.00       0.59       (0.46     0.00       0.00       (0.46 )(j)      0.00  

05/31/2015

    10.98       0.75       0.36       (0.01     0.00       1.10       (0.80     0.00       0.00       (0.80     0.00  

05/31/2014

    11.32       0.75       (0.28     (0.01     0.00       0.46       (0.80     0.00       0.00       (0.80     0.00  

 

^

A zero balance may reflect actual amounts rounding to less than $0.01 or 0.01%.

*

Annualized

**

Variable Rate MuniFund Term Preferred Shares (“VMTP”). See Note 12, Variable Rate MuniFund Term Preferred Shares, in the Notes to the Financial Statements for more information.

(a) 

Per share amounts based on average number of common shares outstanding during the year or period.

(b) 

Auction Rate Preferred Shares (“ARPS”). See Note 12, Auction Rate Preferred Shares, in the Notes to Financial Statements for more information.

(c) 

The tax characterization of distributions is determined in accordance with Federal income tax regulations. See Note 2, Distributions — Common Shares, in the Notes to Financial Statements for more information.

(d) 

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 or period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Funds’ dividend reinvestment plan. Total investment return does not reflect brokerage commissions in connection with the purchase or sale of Fund shares.

(e) 

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

(f) 

Ratio includes interest expense which primarily relates to participation in borrowing and financing transactions, dividends paid to VMTP shareholders and the amortization of debt issuance costs of VMTP Shares. See Note 5, Borrowings and Other Financing Transactions and Note 12, Variable Rate MuniFund Term Preferred Shares in the Notes to Financial Statements for more information.

(g) 

Fiscal year end changed from April 30th to December 31st.

(h) 

Fiscal year end changed from May 31st to December 31st.

(i) 

Fiscal year end changed from September 30th to December 31st.

(j) 

Total distributions for the period ended December 31, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended December 31, 2015.

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Table of Contents
    
Common Share
    Ratios/Supplemental Data  
                        Ratios to Average Net Assets Applicable to Common Shareholders                    
Net Asset
Value End of
Year or
Period
    Market Price
End of Year
or Period
    Total
Investment
Return(d)
    Net Assets
Applicable
to Common
Shareholders
(000s)
    Expenses(e)(f)     Expenses
Excluding
Waivers(e)(f)
    Expenses
Excluding
Interest
Expense(e)
        
    
    
Expenses
Excluding
Interest
Expense
and
Waivers(e)
    Net
Investment
Income (Loss)(e)
    ARPS
Asset
Coverage
Per Share(b)
    VMTP
Asset Coverage
Per Share**
    Portfolio
Turnover
Rate
 
 

    

    

 

 

                     
$   10.67     $   10.47       (7.67 )%    $   119,014       2.15     2.15     1.40     1.40     6.64   $   62,655     $   250,600       24
  11.17       12.00       5.77       124,295       1.63       1.63       1.35       1.35       6.51       64,320       N/A       16  
  10.71       11.98       3.28       118,817       1.42       1.42       1.33       1.33       6.22       62,593       N/A       20  
  11.41       12.35       4.36       126,085       1.35     1.35     1.33     1.33     6.48     64,898       N/A       7  
  11.28       12.32       9.89       124,424       1.40       1.40       1.33       1.33       6.65       64,373       N/A       7  
  10.98       12.01       7.83       120,520       1.51       1.51       1.45       1.45       7.30       63,139       N/A       5  

 

  ANNUAL REPORT   DECEMBER 31, 2018   21


Table of Contents

Statements of Assets and Liabilities

 

(Amounts in thousands, except per share amounts)   PIMCO
Municipal
Income
Fund
    PIMCO
Municipal
Income
Fund II
    PIMCO
Municipal
Income
Fund III
    PIMCO
California
Municipal
Income
Fund
 

Assets:

       

Investments, at value

                               

Investments in securities*

  $ 589,458     $ 1,380,355     $ 641,533     $ 486,937  

Cash

    0       0       1       1  

Interest and/or dividends receivable

    7,664       16,222       7,774       6,899  

Other assets

    46       1,020       55       45  

Total Assets

    597,168       1,397,597       649,363       493,882  

Liabilities:

       

Borrowings & Other Financing Transactions

                               

Payable for tender option bond floating rate certificates

  $ 86,762     $ 298,694     $ 112,388     $ 91,729  

Variable Rate MuniFund Term Preferred Shares, at liquidation value**

    23,130       68,328       34,087       29,106  

Payable for investments purchased

    0       3,045       0       0  

Distributions payable to common shareholders

    1,537       4,048       1,835       1,446  

Distributions payable to auction rate preferred shareholders

    68       122       62       45  

Accrued management fees

    294       613       310       232  

Other liabilities

    364       759       424       393  

Total Liabilities

    112,155       375,609       149,106       122,951  

Auction Rate Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share)

    166,700       298,275       154,700       120,625  

Net Assets Applicable to Common Shareholders

  $ 318,313     $ 723,713     $ 345,557     $ 250,306  

Net Assets Applicable to Common Shareholders Consist of:

       

Par value^

  $ 0     $ 1     $ 0     $ 0  

Paid in capital in excess of par

    286,423       651,991       313,665       226,580  

Distributable earnings (accumulated loss)

    31,890       71,721       31,892       23,726  

Net Assets Applicable to Common Shareholders

  $ 318,313     $ 723,713     $ 345,557     $ 250,306  

Net Asset Value Per Common Share

  $ 12.36     $ 11.62     $ 10.49     $ 13.32  

Common Shares Outstanding

    25,751       62,282       32,943       18,784  

Auction Rate Preferred Shares Issued and Outstanding

    7       12       6       5  

Cost of investments in securities

  $   559,144     $   1,322,995     $   608,202     $   470,414  

* Includes repurchase agreements of:

  $ 3,248     $ 36,462     $ 1,750     $ 229  

** Includes unamortized debt issuance cost of:

  $ 170     $ 372     $ 213     $ 193  

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

^

($0.00001 per share)

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Table of Contents

 

December 31, 2018

 

PIMCO
California
Municipal
Income
Fund II
    PIMCO
California
Municipal
Income
Fund III
    PIMCO
New York
Municipal
Income
Fund
    PIMCO
New York
Municipal
Income
Fund II
 
     
                             
$ 496,094     $ 405,137     $ 151,743     $ 222,793  
  0       0       0       1  
  6,380       5,515       2,022       2,701  
  25       28       531       11  
  502,499       410,680       154,296       225,506  
     
                             
$ 72,613     $ 73,334     $ 24,755     $ 26,348  
  34,087       26,915       0       20,840  
  0       0       0       0  
  1,120       1,003       444       566  
  53       44       22       17  
  248       197       82       119  
  458       338       55       602  
  108,579       101,831       25,358       48,492  

 

128,675

 

    97,875       41,025       58,000  
$ 265,245     $ 210,974     $ 87,913     $ 119,014  
     
$ 0     $ 0     $ 0     $ 0  
  235,767       196,136       82,603       113,648  
  29,478       14,838       5,310       5,366  
$ 265,245     $ 210,974     $ 87,913     $ 119,014  
$ 8.29     $ 9.46     $ 11.29     $ 10.67  
  31,997       22,293       7,790       11,158  
  5       4       2       2  
$   470,449     $   390,699     $   147,348     $   214,178  
$ 3,336     $ 190     $ 742     $ 5,433  
$ 213     $ 185     $ 0     $ 160  

 

  ANNUAL REPORT   DECEMBER 31, 2018   23


Table of Contents

Statements of Operations

 

Year Ended December 31, 2018                        
(Amounts in thousands)   PIMCO
Municipal
Income
Fund
    PIMCO
Municipal
Income
Fund II
    PIMCO
Municipal
Income
Fund III
    PIMCO
California
Municipal
Income
Fund
 

Investment Income:

       

Interest

  $ 28,650     $ 64,634     $ 31,677     $ 22,664  

Total Income

    28,650       64,634       31,677       22,664  

Expenses:

       

Management fees

    3,598       7,502       3,808       2,849  

Trustee fees and related expenses

    45       95       48       36  

Interest expense

    1,743       5,826       2,471       2,221  

Auction agent fees and commissions

    203       422       230       153  

Auction rate preferred shares related expenses

    109       236       134       119  

Miscellaneous expense

    3       19       17       10  

Total Expenses

    5,701       14,100       6,708       5,388  

Net Investment Income (Loss)

    22,949       50,534       24,969       17,276  

Net Realized Gain (Loss):

       

Investments in securities

    4,438       6,957       2,476       6,731  

Net Realized Gain (Loss)

    4,438       6,957       2,476       6,731  

Net Change in Unrealized Appreciation (Depreciation):

       

Investments in securities

    (21,320     (43,230     (21,517     (24,288

Net Change in Unrealized Appreciation (Depreciation)

    (21,320     (43,230     (21,517     (24,288

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ 6,067     $ 14,261     $ 5,928     $ (281

Distributions on Auction Rate Preferred Shares from Net Investment and/or Net Realized Capital Gains

  $ (4,241   $ (8,007   $ (4,132   $ (3,267

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations

  $ 1,826     $ 6,254     $ 1,796     $ (3,548

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Table of Contents

 

    
PIMCO
California
Municipal
Income
Fund II
    PIMCO
California
Municipal
Income
Fund III
    PIMCO
New York
Municipal
Income
Fund
    PIMCO
New York
Municipal
Income
Fund II
 
     
$ 22,380     $ 18,835     $ 7,099     $ 10,518  
  22,380       18,835       7,099       10,518  
     
  3,030       2,416       1,038       1,459  
  37       30       12       18  
  1,564       1,883       484       893  
  220       125       45       101  
  132       110       44       91  
  18       1       3       17  
  5,001       4,565       1,626       2,579  
  17,379       14,270       5,473       7,939  
     
  3,696       3,287       (443     (198
  3,696       3,287       (443     (198
     
  (21,961     (18,393     (5,572     (8,010
  (21,961     (18,393     (5,572     (8,010

$

(886

  $ (836   $ (542   $ (269
$ (3,525   $ (2,691   $ (1,045   $ (1,679

$

(4,411

  $ (3,527   $ (1,587   $ (1,948

 

  ANNUAL REPORT   DECEMBER 31, 2018   25


Table of Contents

Statements of Changes in Net Assets

 

    PIMCO
Municipal Income Fund
    PIMCO
Municipal Income Fund II
 
(Amounts in thousands)   Year Ended
December 31, 2018
    Year Ended
December 31, 2017
    Year Ended
December 31, 2018
    Year Ended
December 31, 2017
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 22,949     $ 23,408     $ 50,534     $ 50,249  

Net realized gain (loss)

    4,438       (1,751     6,957       751  

Net change in unrealized appreciation (depreciation)

    (21,320     10,872       (43,230     22,225  

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations

    6,067       32,529       14,261       73,225  

Distributions on auction rate preferred shares from net investment income and/or net realized capital gains*

    (4,241     (2,622     (8,007     (5,064

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations

    1,826       29,907       6,254       68,161  

Distributions to Common Shareholders:

       

From net investment income and/or net realized capital gains*

    (18,413     (18,916     (48,454     (48,197

Tax basis return of capital

    0       0       0       0  

Total Distributions to Common Shareholders(a)

    (18,413     (18,916     (48,454     (48,197

Auction Rate Preferred Share Transactions**:

       

Net Increase (Decrease) resulting from tender of Auction Rate Preferred Shares

    3,495       0       10,309       0  

Common Share Transactions***:

       

Issued as reinvestment of distributions

    882       1,059       4,267       3,860  

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

    (12,210     12,050       (27,624     23,824  

Net Assets Applicable to Common Shareholders:

       

Beginning of year

    330,523       318,473       751,337       727,513  

End of year

  $   318,313     $   330,523     $   723,713     $   751,337  

*** Common Share Transactions:

       

Shares issued as reinvestment of distributions

    71       80       347       314  

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

*

See Note 2, New Accounting Pronouncements, in the Notes to Financials Statements for more information.

**

See Note 12, Auction Rate Preferred Shares, in the Notes to Financials Statements.

(a) 

The tax characterization of distributions is determined in accordance with Federal income tax regulations. See Note 2, Distributions—Common Shares, in the Notes to Financial Statements for more information.

 

26   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Table of Contents

 

PIMCO
Municipal Income Fund III
    PIMCO
California Municipal Income Fund
    PIMCO
California Municipal Income Fund II
    PIMCO
California Municipal Income Fund III
 
Year Ended
December 31, 2018
    Year Ended
December 31, 2017
    Year Ended
December 31, 2018
    Year Ended
December 31, 2017
    Year Ended
December 31, 2018
    Year Ended
December 31, 2017
    Year Ended
December 31, 2018
    Year Ended
December 31, 2017
 
             
             
$ 24,969     $ 25,374     $ 17,276     $ 18,076     $ 17,379     $ 19,045     $ 14,270     $ 14,805  
  2,476       8,779       6,731       1,030       3,696       3,228       3,287       2,790  
  (21,517     3,381       (24,288     7,068       (21,961     7,655       (18,393     4,888  
  5,928       37,534       (281     26,174    

 

(886

    29,928       (836     22,483  
  (4,132     (2,608     (3,267     (2,067    
    
(3,525

    (2,249     (2,691     (1,727
  1,796       34,926       (3,548     24,107      
    
(4,411

    27,679       (3,527     20,756  
             
  (25,618