Edgar Filing: PIMCO MUNICIPAL INCOME FUND II

PIMCO Municipal Income Fund II

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 811-21076

PIMCO Municipal Income Fund II

(Exact name of registrant as specified in charter)


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

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

(Name and address of agent for service)

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

Date of fiscal year end: May 31, 2013

Date of reporting period: May 31, 2013

Item 1. REPORT TO SHAREHOLDERS

PIMCO Municipal Income Fund II

PIMCO California Municipal Income Fund II

PIMCO New York Municipal Income Fund II

Annual Report

May 31, 2013

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Contents


	2-3			Letter to Shareholders
	4			Fund Insights
	5-6			Fund Performance and Statistics
	7-28			Schedules of Investments
	29			Statements of Assets and Liabilities
	30			Statements of Operations
	32-33			Statements of Changes in Net Assets
	34-47			Notes to Financial Statements
	48-50			Financial Highlights
	51			Report of Independent Registered Public Accounting Firm
	52			Tax Information
	53			Annual Shareholder Meeting Results
	54-55			Privacy Policy/Proxy Voting Policies & Procedures
	56-57			Dividend Reinvestment Plan
	58-59			Board of Trustees
	60			Fund Officers

Letter from the Chairman

and President & CEO

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Hans W. Kertess

Chairman of the Board of Trustees

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Brian S. Shlissel

President & Chief Executive Officer

Dear Shareholder:

Despite periodic setbacks, the municipal bond market generated positive results during the fiscal 12-month reporting period ended May 31, 2013. In particular, longer-term, lower credit municipals were particularly favorable during the period as investors were drawn to higher yielding securities.

For the fiscal 12-month period ended May 31, 2013:

PIMCO Municipal Income Fund II advanced 8.86% on net asset value (“NAV”) and 3.41% on market price.

PIMCO California Municipal Income Fund II rose 12.22% on NAV and 11.41% on market price.

PIMCO New York Municipal Income Fund II increased 6.60% on NAV and 4.14% on market price.

Twelve Months in Review

The US economy continued to grow during the fiscal 12-month reporting period, but the pace of the expansion was far from robust. Gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, grew at an annual pace of 1.3% during the second quarter of 2012. GDP growth accelerated to a 3.1% annual pace during the third quarter of 2012, before declining to a 0.4% annual pace during the fourth quarter of 2012. GDP growth rebounded to an 1.8% annual rate during the first quarter of 2013.

The Federal Reserve (the “Fed”) initiated a number of actions to support the economy and reduce unemployment. In September 2012, the Fed introduced a third round of “quantitative easing” which entailed purchasing $40 billion of mortgage securities each month. Toward the end of 2012, the Fed revealed that it would continue

the purchase of $40 billion mortgage securities each month, in addition to purchasing $45 billion per month of longer-term Treasuries on an open-ended basis. At its meeting in December 2012, the Fed indicated that it expected to maintain the Fed Funds rate in the 0.0% to 0.25% range “…as long as the unemployment rate remains above 6.5%,” provided that inflation remains well contained. The Fed maintained this stance at its meetings in January, March and May 2013.

US Treasury bond yields moved higher during the 12-months ended May 31, 2013. At the beginning of the fiscal period, the benchmark ten-year Treasury bond was yielding 1.59%, ending the period at 2.16%. In July 2012, the yield on the benchmark ten-year Treasury bond fell to a record low 1.43%. This downward trend reflected a variety of factors, such as Europe’s ongoing sovereign debt crisis, uncertainties regarding fiscal policy and decelerating global economic growth. The benchmark ten-year Treasury bond moved sharply higher in May 2013, due to generally positive economic data and concerns that the Fed may begin to taper its quantitative easing program later in the year.

Overall, the municipal bond market was aided by solid demand and attractive yields. As the economy continued to expand, tax revenues increased, which supported many municipalities and helped to improve their fiscal situations. In addition, many municipalities initiated actions to reduce expenditures and address pension funding issues. That being said, the municipal bond market, along with the overall taxable fixed income market, weakened toward the end of the reporting period as Treasury yields increased sharply.


2		May 31, 2013 \|		Annual Report

Outlook

While unemployment remains well above the Fed’s 6.5% target, there has been an increase in market volatility and rising Treasury yields. This was partially triggered by expectations that the Fed may begin tapering the amount of quantitative easing. Our belief is that the Fed will want more evidence that the economy is on solid footing prior to adjusting monetary policy. We expect tapering could be more of an issue in 2014. That being said, we may continue to experience

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periods of heightened volatility given incoming economic data and the market’s attempts to anticipate future Fed actions.

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

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

We remain dedicated to serving your investment needs.

Sincerely,



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


Annual Report \|		May 31, 2013			3

Fund Insights

PIMCO Municipal Income Fund II

PIMCO California Municipal Income Fund II

PIMCO New York Municipal Income Fund II

PIMCO Municipal Income Fund II advanced 8.86% on net asset value (“NAV”) and 3.41% on market price.

PIMCO California Municipal Income Fund II rose 12.22% on NAV and 11.41% on market price.

PIMCO New York Municipal Income Fund II increased 6.60% on NAV and 4.14% on market price.

The municipal bond market generated positive results during the fiscal 12-month reporting period ended May 31, 2013. The overall municipal market, as measured by the Barclays Municipal Bond Index (the “Index”), posted positive returns during five of the first six months of the period. During this time, many states benefited from positive year-over-year tax receipts and new issuance was not sufficient to meet robust investor demand. The Index declined in December 2012, as investor sentiment weakened due to uncertainties related to the “fiscal cliff” and future tax-favored status of municipal bonds. The Index again rallied in January and February 2013, as municipal bonds maintained their tax-exempt status and solid demand resumed. However, there was another sell-off in March, as new supply increased sharply, demand waned and Treasury yields moved higher. After another rally in April, the market declined in May amid sharply rising Treasury yields. All told, during the 12-month period, the Index returned 3.05%. In comparison, the overall taxable fixed income

market, as measured by the Barclays US Aggregate Bond Index, gained 0.91% during the same period.

A shorter duration than the benchmark contributed positively to the performance of Municipal II as municipal yields moved higher across the yield curve during the 12-month reporting period. Conversely, duration positioning detracted from the performance of New York Municipal Income II and California Municipal Income II.

Each of the Funds benefited from an overweighting to the Industrial Revenue and Tobacco sectors given their outperformance versus the Index. Municipal Income II and California Municipal II were rewarded for their overweighting to revenue-backed municipal bonds as they outperformed the Index. Municipal II and New York Municipal II held overweight positions in the Health Care sector, which was beneficial as the sector outperformed the Index.

An underweight exposure to the Transportation sector detracted from the returns of all three Funds as this sector outperformed in comparison to the Index. Municipal II’s and California Municipal II’s underweighting to the Education sector was detrimental given its outperformance versus the Index. New York Municipal II’s exposure to the Water and Sewer Utility sector detracted from results during the reporting period.


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Fund Performance and Statistics

PIMCO Municipal Income Funds II

May 31, 2013 (unaudited)


Municipal Income II Total Return⁽¹⁾:	Market Price		NAV
1 Year		3.41%		8.86%
5 Year		4.47%		4.91%
10 Year		4.97%		5.08%
Commencement of Operations (6/28/02) to 5/31/13		5.02%		5.47%


Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 5/31/13

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Market Price/NAV:
Market Price			$12.19
NAV			$12.17
Premium to NAV			0.16%
Market Price Yield⁽²⁾			6.40%
Leverage Ratio⁽³⁾			35.68%

Moody’s Rating

(as a % of total investments)

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California Municipal Income II Total Return⁽¹⁾:	Market Price		NAV
1 Year		11.41%		12.22%
5 Year		2.48%		1.45%
10 Year		4.09%		2.99%
Commencement of Operations (6/28/02) to 5/31/13		4.13%		3.47%


Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 5/31/13

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Market Price/NAV:
Market Price			$10.51
NAV			$8.93
Premium to NAV			17.69%
Market Price Yield⁽²⁾			6.43%
Leverage Ratio⁽³⁾			41.61%

Moody’s Rating

(as a % of total investments)

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Annual Report \|		May 31, 2013			5

Fund Performance and Statistics

PIMCO Municipal Income Funds II

May 31, 2013 (unaudited) (continued)


New York Municipal Income II Total Return⁽¹⁾:	Market Price		NAV
1 Year		4.14%		6.60%
5 Year		3.70%		3.82%
10 Year		4.80%		4.51%
Commencement of Operations (6/28/02) to 5/31/13		4.73%		4.72%


Market Price/NAV Performance:

Commencement of Operations (6/28/02) to 5/31/13

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Market Price/NAV:
Market Price			$12.01
NAV			$11.32
Premium to NAV			6.10%
Market Price Yield⁽²⁾			6.62%
Leverage Ratio⁽³⁾			41.35%

Moody’s Rating

(as a % of total investments)

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(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares.

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

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

(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at May 31, 2013.

(3) Represents Floating Rate Note transactions and Preferred Shares outstanding (collectively “Leverage”), as a percentage of total managed assets. Total managed assets refer to total assets (including assets attributable to Leverage) minus accrued liabilities (other than liabilities representing Leverage).


6		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013


Principal Amount (000s)			Value
	Municipal Bonds & Notes – 98.5%
	Alabama – 1.3%
$	10,000	Birmingham-Baptist Medical Centers Special Care Facs. Financing Auth. Rev., Baptist Health Systems, Inc., 5.00%, 11/15/30, Ser. A	$	10,400,700
	1,235	Montgomery BMC Special Care Facs. Financing Auth. Rev., 5.00%, 11/15/29, Ser. B (NPFGC)		1,238,149
	2,000	State Docks Department Rev., 6.00%, 10/1/40		2,374,500
				14,013,349
	Arizona – 6.8%
		Health Facs. Auth. Rev., Banner Health,
	3,500	5.00%, 1/1/35, Ser. A		3,683,680
	2,860	5.50%, 1/1/38, Ser. D		3,150,433
		Pima Cnty. Industrial Dev. Auth. Rev.,
	29,700	5.00%, 9/1/39		30,942,648
	1,500	Tucson Electric Power Co., 5.25%, 10/1/40, Ser. A		1,636,800
		Pinal Cnty. Electric Dist. No. 3 Rev.,
	1,750	5.25%, 7/1/36		1,899,590
	3,700	5.25%, 7/1/41		3,974,022
	10,000	Salt River Project Agricultural Improvement & Power Dist. Rev., 5.00%, 1/1/39, Ser. A (h)		11,198,800
	17,900	Salt Verde Financial Corp. Rev., 5.00%, 12/1/37		19,642,207
				76,128,180
	California – 15.4%
		Bay Area Toll Auth. Rev., San Francisco Bay Area,
	6,000	5.00%, 10/1/29		6,838,380
	1,430	5.00%, 4/1/34, Ser. F-1		1,590,031
	1,565	Foothill-Eastern Transportation Corridor Agcy. Rev., 5.875%, 1/15/26 (IBC-NPFGC)		1,602,341
		Golden State Tobacco Securitization Corp. Rev.,
	2,000	5.00%, 6/1/45, Ser. A		2,079,020
	10,000	5.30%, 6/1/37, Ser. A-2		9,393,500
	20,035	5.75%, 6/1/47, Ser. A-1		18,816,872
	2,000	Hayward Unified School Dist., GO, 5.00%, 8/1/33		2,121,360
		Health Facs. Financing Auth. Rev.,
	1,500	Scripps Health, 5.00%, 11/15/36, Ser. A		1,624,275
	6,300	Sutter Health, 5.00%, 11/15/42, Ser. A (IBC-NPFGC)		6,633,270
	2,000	Sutter Health, 5.00%, 8/15/52, Ser. A		2,122,940
	3,000	Sutter Health, 6.00%, 8/15/42, Ser. B		3,567,660
	1,500	Indian Wells Redev. Agcy., Tax Allocation, Whitewater Project, 4.75%, 9/1/34, Ser. A (AMBAC)		1,395,465
	2,000	Los Angeles Community College Dist., GO, 5.00%, 8/1/32, Ser. A (FGIC-NPFGC)		2,224,540
	4,000	Los Angeles Department of Water & Power Rev., 5.00%, 7/1/39, Ser. A-1 (AMBAC)		4,304,440
	5,000	Los Angeles Unified School Dist., GO, 5.00%, 7/1/30, Ser. E (AMBAC)		5,334,500
	1,750	M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B		2,310,508
	2,000	Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)		2,201,720
	2,985	Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B		3,510,748
	3,000	Newport Beach Rev., Hoag Memorial Hospital Presbyterian, 5.875%, 12/1/30		3,614,700


Annual Report \|		May 31, 2013			7

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	California (continued)
$	500	Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C	$	542,630
	2,000	San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. 2008-A (AGM)		2,202,240
	3,300	San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A		3,589,806
	2,000	Santa Clara Cnty. Financing Auth. Rev., El Camino Hospital, 5.75%, 2/1/41, Ser. A (AMBAC)		2,190,360
		State, GO,
	2,925	5.00%, 11/1/32		3,208,988
	1,590	5.00%, 6/1/37		1,713,050
	5,200	5.125%, 8/1/36		5,742,308
	2,500	5.25%, 3/1/38		2,759,425
	5,945	5.25%, 11/1/40		6,655,368
	5,750	5.50%, 3/1/40		6,674,140
	9,500	6.00%, 4/1/38		11,302,150
		Statewide Communities Dev. Auth. Rev.,
	2,970	California Baptist Univ., 5.75%, 11/1/17, Ser. B (a)(d)		3,216,569
	785	California Baptist Univ., 6.50%, 11/1/21		922,665
	1,000	Cottage Health, 5.00%, 11/1/40		1,080,140
	4,890	Methodist Hospital Project, 6.625%, 8/1/29 (FHA)		5,940,617
	17,415	Methodist Hospital Project, 6.75%, 2/1/38 (FHA)		20,768,258
	5,690	Sutter Health, 6.00%, 8/15/42, Ser. A		6,766,662
	4,725	Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A		5,062,082
				171,623,728
	Colorado – 1.8%
	5,800	Aurora Rev., Children’s Hospital Assoc., 5.00%, 12/1/40		6,216,324
	1,000	Denver Health & Hospital Auth. Rev., 5.625%, 12/1/40		1,105,620
		Health Facs. Auth. Rev., Ser. A,
	1,000	American Baptist Homes, 5.90%, 8/1/37		1,009,790
	2,500	Catholic Health Initiatives, 5.00%, 2/1/41		2,678,675
	500	Evangelical Lutheran, 6.125%, 6/1/38 (Pre-refunded @ $100 6/1/14) (c)		528,945
	6,045	Sisters of Charity of Leavenworth Health System, 5.00%, 1/1/40		6,506,899
	1,430	Public Auth. for Colorado Energy Rev., 6.50%, 11/15/38		1,916,457
				19,962,710
	Connecticut – 0.3%
	1,250	Harbor Point Infrastructure Improvement Dist., Tax Allocation, 7.875%, 4/1/39, Ser. A		1,422,925
	2,000	State Health & Educational Fac. Auth. Rev., Hartford Healthcare, 5.00%, 7/1/41, Ser. A		2,128,240
				3,551,165
	District of Columbia – 0.9%
	8,070	Dist. of Columbia Rev., 5.00%, 12/1/23, Ser. A		9,871,708
	Florida – 4.8%
	1,000	Brevard Cnty. Health Facs. Auth. Rev., Health First, Inc. Project, 7.00%, 4/1/39		1,213,960
		Broward Cnty. Airport System Rev.,
	12,100	5.00%, 10/1/42, Ser. Q-1		13,082,157
	600	5.375%, 10/1/29, Ser. O		680,376


8		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Florida (continued)
$	8,500	Broward Cnty. Water & Sewer Utility Rev., 5.25%, 10/1/34, Ser. A (h)	$	9,666,880
	1,000	Clearwater Water & Sewer Rev., 5.25%, 12/1/39, Ser. A		1,105,680
	340	Dev. Finance Corp. Rev., Renaissance Charter School, 6.50%, 6/15/21, Ser. A		393,570
	3,000	Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System, 5.625%, 11/15/37, Ser. B		3,394,440
	6,795	Jacksonville Health Facs. Auth. Rev., Ascension Health, 5.25%, 11/15/32, Ser. A		6,875,453
	3,000	Leesburg Hospital Rev., Leesburg Regional Medical Center Project, 5.50%, 7/1/32		3,002,430
	500	Sarasota Cnty. Health Facs. Auth. Rev., 5.75%, 7/1/37		495,470
	7,900	State Board of Education, GO, 5.00%, 6/1/38, Ser. D (h)		8,930,476
	5,000	Sumter Landing Community Dev. Dist. Rev., 4.75%, 10/1/35, Ser. A (NPFGC)		5,073,250
				53,914,142
	Georgia – 0.4%
	1,500	Atlanta Airport Rev., 5.00%, 1/1/40, Ser. A		1,646,730
	2,775	Medical Center Hospital Auth. Rev., Spring Harbor Green Island Project, 5.25%, 7/1/37		2,759,876
				4,406,606
	Illinois – 6.4%
		Chicago,
	2,500	GO, 5.00%, 1/1/34, Ser. C		2,631,350
	2,758	Special Assessment, Lake Shore East, 6.625%, 12/1/22		2,824,661
	5,856	Special Assessment, Lake Shore East, 6.75%, 12/1/32		5,995,314
	1,250	Chicago Motor Fuel Tax Rev., 5.00%, 1/1/38, Ser. A (AGC)		1,295,900
		Finance Auth. Rev.,
	2,500	Christian Homes, Inc., 5.75%, 5/15/31, Ser. A		2,644,100
	250	Leafs Hockey Club Project, 6.00%, 3/1/37, Ser. A (b)(e)		85,000
	700	OSF Healthcare System, 7.125%, 11/15/37, Ser. A		837,592
	2,000	Provena Health, 6.00%, 5/1/28, Ser. A		2,305,620
	5,000	Univ. of Chicago, 5.50%, 7/1/37, Ser. B (h)		5,821,650
	37,000	Sports Facs. Auth. Rev., 5.50%, 6/15/30 (AMBAC)		39,358,380
		Village of Hillside, Tax Allocation, Mannheim Redev. Project,
	3,880	6.55%, 1/1/20		4,026,199
	2,900	7.00%, 1/1/28		2,889,328
				70,715,094
	Indiana – 0.5%
	1,500	Finance Auth. Rev., Duke Energy Indiana, Inc., 6.00%, 8/1/39, Ser. B		1,683,900
		Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc.,
	990	5.80%, 9/1/47 (a)(d)		1,030,946
	1,900	7.50%, 9/1/22		2,450,772
				5,165,618
	Iowa – 2.4%
		Finance Auth. Rev.,
	250	Deerfield Retirement Community, Inc., 5.50%, 11/15/27, Ser. A		161,845
	1,075	Deerfield Retirement Community, Inc., 5.50%, 11/15/37, Ser. A		695,063
	4,500	Edgewater LLC Project, 6.75%, 11/15/42		4,758,840
	5,000	Fertilizer Company Project, 5.25%, 12/1/25		5,162,900


Annual Report \|		May 31, 2013			9

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Iowa (continued)
$	5,000	Fertilizer Company Project, 5.50%, 12/1/22	$	5,228,400
	10,350	Tobacco Settlement Auth. Rev., 5.60%, 6/1/34, Ser. B		10,311,912
				26,318,960
	Kansas – 0.1%
	500	Dev. Finance Auth. Rev., Adventist Health, 5.75%, 11/15/38		567,475
	850	Manhattan Rev., Meadowlark Hills Retirement, 5.00%, 5/15/36, Ser. A		852,389
				1,419,864
	Kentucky – 0.1%
	1,000	Economic Dev. Finance Auth. Rev., Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A		1,173,490
	Louisiana – 1.5%
		Local Gov’t Environmental Facs. & Community Dev. Auth Rev.,
	450	Westlake Chemical Corp., 6.50%, 11/1/35, Ser. A-2		536,409
	750	Woman’s Hospital Foundation, 5.875%, 10/1/40, Ser. A		877,868
	1,000	Woman’s Hospital Foundation, 6.00%, 10/1/44, Ser. A		1,173,590
		Public Facs. Auth. Rev., Ochsner Clinic Foundation Project,
	3,300	5.50%, 5/15/47, Ser. B		3,504,864
	2,000	6.50%, 5/15/37		2,426,860
	7,750	Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B		7,785,882
				16,305,473
	Maryland – 0.9%
		Health & Higher Educational Facs. Auth. Rev.,
	1,000	Adventist Healthcare, 5.75%, 1/1/25, Ser. A		1,011,790
	1,400	Charlestown Community, 6.25%, 1/1/41		1,597,120
	1,010	King Farm Presbyterian Community, 5.30%, 1/1/37, Ser. A		978,266
	2,380	Medstar Health, 5.00%, 8/15/41		2,549,908
	4,050	Washington Cnty. Hospital, 6.00%, 1/1/43		4,376,471
				10,513,555
	Massachusetts – 0.9%
		Dev. Finance Agcy. Rev.,
	4,610	Adventcare Project, 6.75%, 10/15/37, Ser. A		4,894,437
	580	Adventcare Project, 7.625%, 10/15/37		657,099
	1,000	Foxborough Regional Charter School, 7.00%, 7/1/42, Ser. A		1,142,870
	2,900	State College Building Auth. Rev., 5.50%, 5/1/39, Ser. A		3,345,556
				10,039,962
	Michigan – 2.3%
	1,000	Detroit, GO, 5.25%, 11/1/35		1,068,160
	5,000	Detroit Water and Sewerage Dept. Rev., 5.25%, 7/1/39, Ser. A		5,326,450
	5,000	Detroit Water Supply System Rev., 5.25%, 7/1/41, Ser. A		5,247,850
	800	Public Educational Facs. Auth. Rev., Bradford Academy, 6.50%, 9/1/37 (a)(d)		438,304
	3,000	Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 8.25%, 9/1/39		3,786,330
	10,510	Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A		9,746,974
				25,614,068


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Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Minnesota – 0.6%
$	1,500	Minneapolis Rev., Providence Project, 5.75%, 10/1/37, Ser. A	$	1,513,455
		North Oaks Rev., Presbyterian Homes North Oaks,
	2,640	6.00%, 10/1/33		2,794,836
	1,530	6.125%, 10/1/39		1,623,468
	500	Oronoco Rev., Wedum Shorewood Campus Project, 5.40%, 6/1/41		501,635
	400	St. Louis Park Rev., Nicollett Health Services, 5.75%, 7/1/39		441,700
				6,875,094
	Mississippi – 0.0%
	70	Dev. Bank Special Obligation Rev., Capital Projects and Equipment Acquisition, 5.00%, 7/1/24, Ser. A-2 (AMBAC)		70,234
	Missouri – 0.1%
	645	Lee’s Summit, Tax Allocation, Summit Fair Project, 5.625%, 10/1/23		686,170
	Nevada – 0.9%
	10,000	Clark Cnty., GO, 4.75%, 11/1/35 (FGIC-NPFGC) (h)		10,511,700
	New Hampshire – 0.2%
	2,000	Business Finance Auth. Rev., Elliot Hospital, 6.125%, 10/1/39, Ser. A		2,244,700
	New Jersey – 6.0%
	950	Burlington Cnty. Bridge Commission Rev., The Evergreens Project, 5.625%, 1/1/38		978,263
		Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project,
	4,000	5.75%, 10/1/21		4,378,480
	11,405	5.75%, 4/1/31		12,824,010
		Economic Dev. Auth. Rev.,
	525	Arbor Glen, 6.00%, 5/15/28, Ser. A		524,942
	2,000	MSU Student Housing Project, 5.875%, 6/1/42		2,255,240
		Health Care Facs. Financing Auth. Rev.,
	1,500	AHS Hospital Corp., 6.00%, 7/1/37		1,799,025
	1,500	St. Peters Univ. Hospital, 5.75%, 7/1/37		1,625,100
	2,000	State Turnpike Auth. Rev., 5.25%, 1/1/40, Ser. E		2,196,980
		Tobacco Settlement Financing Corp. Rev., Ser. 1-A,
	3,300	4.75%, 6/1/34		2,915,352
	23,705	5.00%, 6/1/41		20,975,843
	15,000	Transportation Trust Fund Auth. Rev., 5.00%, 6/15/42, Ser. B		16,170,600
				66,643,835
	New Mexico – 0.2%
	2,000	Farmington Pollution Control Rev., 5.90%, 6/1/40, Ser. D		2,236,140
	New York – 14.1%
	34,500	Hudson Yards Infrastructure Corp. Rev., 5.25%, 2/15/47, Ser. A		38,074,890
		Liberty Dev. Corp. Rev.,
	1,000	Bank of America Tower at One Bryant Park Project, 5.125%, 1/15/44		1,086,520
	2,500	Bank of America Tower at One Bryant Park Project, 5.625%, 7/15/47		2,815,725
	1,250	Bank of America Tower at One Bryant Park Project, 6.375%, 7/15/49		1,462,825
	10,000	Goldman Sachs Headquarters, 5.25%, 10/1/35 (h)		11,590,400
	1,505	Goldman Sachs Headquarters, 5.25%, 10/1/35		1,744,355
	3,880	Metropolitan Transportation Auth. Rev., 5.00%, 11/15/36, Ser. D		4,257,641


Annual Report \|		May 31, 2013			11

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	New York (continued)
$	1,100	Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A	$	623,854
		New York City Water & Sewer System Rev.,
	2,830	5.00%, 6/15/37, Ser. D (h)		3,031,807
	4,000	Second Generation Resolutions, 4.75%, 6/15/35, Ser. DD (h)		4,326,840
	2,000	Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1		2,205,140
		New York Liberty Dev. Corp. Rev.,
	10,000	1 World Trade Center Project, 5.00%, 12/15/41		11,020,100
	54,000	4 World Trade Center Project, 5.75%, 11/15/51		62,218,260
	1,750	State Dormitory Auth. Rev., The New School, 5.50%, 7/1/40		1,968,715
	10,005	State Thruway Auth. Rev., 5.00%, 1/1/42, Ser. I		10,891,343
				157,318,415
	North Carolina – 0.1%
		Medical Care Commission Rev.,
	550	Salemtowne, 5.10%, 10/1/30		561,743
	1,000	Village at Brookwood, 5.25%, 1/1/32		1,025,790
				1,587,533
	North Dakota – 0.4%
	3,710	Stark Cnty. Healthcare Rev., Benedictine Living Communities, 6.75%, 1/1/33		4,018,709
	Ohio – 3.6%
	24,140	Buckeye Tobacco Settlement Financing Auth. Rev., 6.50%, 6/1/47, Ser. A-2		23,464,321
	4,000	Hamilton Cnty. Healthcare Rev., Christ Hospital Project, 5.00%, 6/1/42		4,231,360
	3,900	Hamilton Cnty. Sales Tax Rev., 5.00%, 12/1/30, Ser. A		4,290,312
	1,000	Higher Educational Fac. Commission Rev., Univ. Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A (Pre-refunded @ $100, 1/15/15) (c)		1,103,070
	2,000	JobsOhio Beverage System Rev., 5.00%, 1/1/38, Ser. A		2,194,400
	1,000	Montgomery Cnty. Rev., Miami Valley Hospital, 6.25%, 11/15/39, Ser. A (Pre-refunded @ $100, 11/15/14) (c)		1,086,300
	3,000	State Rev., Cleveland Clinic Health System, 5.50%, 1/1/39, Ser. B		3,347,910
				39,717,673
	Oregon – 0.2%
	1,000	Clackamas Cnty. Hospital Fac. Auth. Rev., Legacy Health System, 5.50%, 7/15/35, Ser. A		1,089,050
	1,155	State Department of Administrative Services, CP, 5.25%, 5/1/39, Ser. A		1,254,261
				2,343,311
	Pennsylvania – 4.7%
	10,000	Berks Cnty. Municipal Auth. Rev., Reading Hospital Medical Center, 5.00%, 11/1/44, Ser. A		10,719,400
		Cumberland Cnty. Municipal Auth. Rev., Messiah Village Project, Ser. A,
	750	5.625%, 7/1/28		790,988
	670	6.00%, 7/1/35		710,113
	3,250	Harrisburg Auth. Rev., Harrisburg Univ. of Science, 6.00%, 9/1/36, Ser. B (e)		2,375,197
		Higher Educational Facs. Auth. Rev.,
	850	Edinboro Univ. Foundation, 6.00%, 7/1/43		951,566


12		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Pennsylvania (continued)
$	400	Thomas Jefferson Univ., 5.00%, 3/1/40	$	430,988
	500	Luzerne Cnty. Industrial Dev. Auth. Rev., Pennsylvania American Water Co., 5.50%, 12/1/39		543,380
	8,500	Montgomery Cnty. Industrial Dev. Auth. Rev., New Regional Medical Center, 5.375%, 8/1/38 (FHA)		9,575,165
	17,000	Philadelphia, GO, 5.25%, 12/15/32, Ser. A (AGM)		18,403,350
	6,000	Philadelphia Hospitals & Higher Education Facs. Auth. Rev., Temple Univ. Health System, 5.625%, 7/1/42, Ser. A		6,401,280
	500	Philadelphia Water & Wastewater Rev., 5.25%, 1/1/36, Ser. A		548,445
	1,000	Westmoreland Cnty. Industrial Dev. Auth. Rev., Excela Health Project, 5.125%, 7/1/30		1,096,410
				52,546,282
	Rhode Island – 5.2%
	56,200	Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A		57,330,744
	South Carolina – 0.1%
	1,000	Greenwood Cnty. Rev., Self Regional Healthcare, 5.375%, 10/1/39		1,078,400
	Tennessee – 1.2%
	1,750	Claiborne Cnty. Industrial Dev. Board Rev., Lincoln Memorial Univ. Project, 6.625%, 10/1/39		1,971,988
	1,000	Johnson City Health & Educational Facs. Board Rev., Mountain States Health Alliance, 6.00%, 7/1/38, Ser. A		1,162,880
	500	Sullivan Cnty. Health Educational & Housing Facs. Board Rev., Wellmont Health Systems Project, 5.25%, 9/1/36, Ser. C		529,535
		Tennessee Energy Acquisition Corp. Rev., Ser. C,
	3,000	5.00%, 2/1/23		3,415,980
	6,000	5.00%, 2/1/27		6,727,200
				13,807,583
	Texas – 12.1%
	130	Aubrey Independent School Dist., GO, 5.50%, 2/15/33 (GTD-PSF)		134,167
	6,500	Brazos Cnty. Health Facs. Dev. Corp. Rev., 5.375%, 1/1/32		6,531,785
	2,500	Dallas Rev., Dallas Civic Center, 5.25%, 8/15/38 (AGC)		2,734,325
	4,000	Dallas/Fort Worth International Airport Rev., 5.00%, 11/1/33, Ser. G		4,377,400
		Harris Cnty. Cultural Education Facs. Finance Corp. Rev.,
	2,000	Baylor College of Medicine, 5.00%, 11/15/37		2,152,720
	3,750	Texas Children’s Hospital Project, 5.25%, 10/1/29		4,297,537
	12,700	Texas Children’s Hospital Project, 5.50%, 10/1/39		14,228,064
	700	HFDC of Central Texas, Inc. Rev., Village at Gleannloch Farms, 5.50%, 2/15/37, Ser. A		692,622
	5,000	Municipal Gas Acquisition & Supply Corp. III Rev., 5.00%, 12/15/26		5,438,300
		North Harris Cnty. Regional Water Auth. Rev.,
	10,300	5.25%, 12/15/33		11,394,890
	10,300	5.50%, 12/15/38		11,447,317
		North Texas Tollway Auth. Rev.,
	5,750	5.00%, 1/1/38		6,188,437
	1,300	5.50%, 9/1/41, Ser. A		1,499,706
	5,000	5.625%, 1/1/33, Ser. B		5,602,150


Annual Report \|		May 31, 2013			13

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Texas (continued)
$	1,200	5.75%, 1/1/33, Ser. F	$	1,339,980
	1,920	Private Activity Bond Surface Transportation Corp. Rev., 7.00%, 6/30/40		2,328,192
	250	San Juan Higher Education Finance Auth. Rev., 6.70%, 8/15/40, Ser. A		294,745
		State, Mobility Fund, GO (h),
	10,025	4.75%, 4/1/35, Ser. A		10,552,616
	17,500	4.75%, 4/1/36		18,863,775
	1,000	State Public Finance Auth. Charter School Finance Corp. Rev., 5.875%, 12/1/36, Ser. A		1,080,610
	3,000	Tarrant Cnty. Cultural Education Facs. Finance Corp. Rev., Baylor Health Care Systems Project, 6.25%, 11/15/29		3,502,740
	15,300	Texas Municipal Gas Acquisition & Supply Corp. I Rev., 6.25%, 12/15/26, Ser. D		19,273,257
	1,000	Wise Cnty. Rev., Parker Cnty. Junior College Dist., 8.00%, 8/15/34		1,194,370
				135,149,705
	Virginia – 0.2%
	1,000	Fairfax Cnty. Industrial Dev. Auth. Rev., Inova Health Systems, 5.50%, 5/15/35, Ser. A		1,139,260
		James City Cnty. Economic Dev. Auth. Rev., United Methodist Home, Ser. A,
	412	2.00%, 10/1/48		10,900
	1,273	6.00%, 6/1/43		1,183,555
				2,333,715
	Washington – 1.5%
		Health Care Facs. Auth. Rev.,
	1,300	Multicare Health Systems, 6.00%, 8/15/39, Ser. B (AGC)		1,477,957
	1,000	Seattle Cancer Care Alliance, 7.375%, 3/1/38		1,251,170
	13,000	Virginia Mason Medical Center, 6.125%, 8/15/37, Ser. A		14,203,020
				16,932,147
	West Virginia – 0.2%
	2,000	Hospital Finance Auth. Rev., Highland Hospital, 9.125%, 10/1/41		2,549,560
	Wisconsin – 0.1%
	1,000	Health & Educational Facs. Auth. Rev., Prohealth Care, Inc., 6.625%, 2/15/39		1,148,880
		Total Municipal Bonds & Notes (cost-$996,831,488)		1,097,868,202

	Variable Rate Notes – 1.5%
	California – 0.5%
	5,000	Health Facs. Financing Auth. Rev., 8.04%, 11/15/36, Ser. 3193 (a)(d)(f)(g)		5,927,700
	Florida – 0.2%
	1,830	Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System, 5.00%, 11/15/31, Ser. C (g)		1,893,300
	Texas – 0.6%
	5,365	State, GO, 7.603%, 4/1/37, Ser. 3197 (a)(d)(f)(g)		6,364,338


14		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	West Virginia – 0.2%
$	2,000	Economic Dev. Auth. Rev., Appalachian Power, 5.375%, 12/1/38, Ser. A (g)	$	2,232,600
		Total Variable Rate Notes (cost-$13,982,612)		16,417,938

	Short-Term Investments – 0.0%
	U.S. Treasury Obligations – 0.0%
	100	U.S. Treasury Bills, 0.084%, 2/6/14 (i)		99,943
	100	U.S. Treasury Notes, 1.25%, 4/15/14		100,961
		Total U.S. Treasury Obligations (cost-$200,916)		200,904
		Total Investments (cost-$1,011,015,016) – 100.0%		$1,114,487,044

Industry classification of portfolio holdings as a percentage of total investments at May 31, 2013 was as follows:


Revenue Bonds:
Health, Hospital & Nursing Home Revenue	25.3	%
Tobacco Settlement Funded	14.6
Industrial Revenue	7.2
Miscellaneous Taxes	6.9
Natural Gas Revenue	5.3
Miscellaneous Revenue	4.6
Water Revenue	4.4
Port, Airport & Marina Revenue	3.0
Highway Revenue Tolls	2.9
Lease (Appropriation)	2.8
College & University Revenue	2.7
Electric Power & Light Revenue	2.3
Income Tax Revenue	0.9
Sewer Revenue	0.5
Sales Tax Revenue	0.4
Transit Revenue	0.4
Resource Recovery Revenue	0.2
Fuel Sales Tax Revenue	0.1
Local or Guaranteed Housing	0.1
Lease Revenue	0.1
Recreational Revenue	0.0

Total Revenue Bonds			84.7	%
General Obligation			11.8
Special Assessment			2.3
Tax Allocation			0.9
Certificates of Participation			0.3
U.S. Treasury Notes			0.0
U.S. Treasury Bills			0.0

Total Investments			100.0	%


Annual Report \|		May 31, 2013			15

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)

Notes to Schedule of Investments:

(a)

Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $16,977,857, representing 1.5% of total investments.

(b)

Illiquid.

(c)

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

(d)

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

(e)

In default.

(f)

Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on May 31, 2013.

(g)

Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on May 31, 2013.

(h)

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

(i)

Rates reflect the effective yields at purchase date.

(j)

Floating Rate Notes for the year ended May 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended May 31, 2013 was $49,317,277 at a weighted average interest rate, including fees, of 0.79%.

(k)

Interest rate swap agreements outstanding at May 31, 2013:

OTC

swap agreements:


	Notional Amount (000s)		Termination Date		Rate Type				Value		Upfront Premiums Received			Unrealized Appreciation
Swap Counterparty	Notional Amount (000s)		Termination Date		Payments Made	Payments Received			Value		Upfront Premiums Received			Unrealized Appreciation
Bank of America	$	89,000		9/5/18	3-Month USD-LIBOR		1.60	%	$	218,940	$	(69,190	)	$	288,130
Citigroup		47,000		11/20/22	3-Month USD-LIBOR		2.65	%		11,750		(34,420	)		46,170

									$	230,690	$	(103,610	)	$	334,300

(l)

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


	Level 1 Quoted Prices		Level 2 Other Significant Observable Inputs		Level 3 Significant Unobservable Inputs		Value at 5/31/13
Investments in Securities – Assets

Municipal Bonds & Notes	$	—	$	1,097,868,202	$	—	$	1,097,868,202
Variable Rate Notes		—		16,417,938		—		16,417,938
Short-Term Investments		—		200,904		—		200,904
		—		1,114,487,044		—		1,114,487,044
*Other Financial Instruments – Assets**

Interest Rate Contracts		—		334,300		—		334,300
Totals	$	—	$	1,114,821,344	$	—	$	1,114,821,344


16		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO Municipal Income Fund II

May 31, 2013 (continued)

At May 31, 2013, there were no transfers between Levels 1 and 2.

Other financial instruments are derivatives, such as swap agreements, which are valued at the unrealized appreciation (depreciation) of the instrument.

(m)

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

The effect of derivatives on the Statement of Assets and Liabilities at May 31, 2013:


Location	Interest Rate Contracts
Asset derivatives:
Unrealized appreciation of OTC swaps	$	334,300

The effect of derivatives on the Statement of Operations for the year ended May 31, 2013:


Location	Interest Rate Contracts
Net realized loss on:
Futures contracts	$	(372,078	)
Swaps		(334,300	)

Total net realized loss	$	(706,378	)

Net change in unrealized appreciation/depreciation of:
Futures contracts	$	203,238
Swaps		334,300

Total net change in unrealized appreciation/depreciation	$	537,538

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended May 31, 2013:

Futures

Contracts
Short⁽¹⁾

Interest
Rate Swap
Agreements⁽²⁾

(20)

27,200

⁽¹⁾

Number of contracts

⁽²⁾

Notional Amount (in thousands)

Glossary:


AGC	-	insured by Assured Guaranty Corp.
AGM	-	insured by Assured Guaranty Municipal Corp.
AMBAC	-	insured by American Municipal Bond Assurance Corp.
CP	-	Certificates of Participation
FGIC	-	insured by Financial Guaranty Insurance Co.
FHA	-	insured by Federal Housing Administration
GO	-	General Obligation Bond
GTD	-	Guaranteed
IBC	-	Insurance Bond Certificate
LIBOR	-	London Inter-Bank Offered Rate
NPFGC	-	insured by National Public Finance Guarantee Corp.
OTC	-	Over-the-Counter
PSF	-	Public School Fund


See accompanying Notes to Financial Statements \|		May 31, 2013 \|		Annual Report			17

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013


Principal Amount (000s)			Value
	California Municipal Bonds & Notes – 86.5%
$	2,000	Alhambra Rev., Atherton Baptist Homes, 7.625%, 1/1/40, Ser. A	$	2,210,780
	20,000	Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/39 (g)		21,999,600
		Chabot-Las Positas Community College Dist., GO, Ser. C,
	17,305	zero coupon, 8/1/36 (AMBAC)		5,453,498
	5,000	zero coupon, 8/1/37 (AMBAC)		1,493,850
	15,000	zero coupon, 8/1/43 (AMBAC)		3,298,950
	1,000	Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B		1,180,540
	300	City & Cnty. of San Francisco, Capital Improvement Projects, CP, 5.25%, 4/1/31, Ser. A		324,465
	9,145	Coronado Community Dev. Agcy., Tax Allocation, 4.875%, 9/1/35 (AMBAC)		9,413,040
	25,000	Desert Community College Dist., GO, zero coupon, 8/1/46, Ser. C (AGM)		4,341,500
	8,300	El Dorado Irrigation Dist. & El Dorado Water Agcy., CP, 5.75%, 8/1/39, Ser. A (AGC)		8,692,590
	1,500	Foothill-Eastern Transportation Corridor Agcy. Rev., 5.875%, 1/15/27 (IBC-NPFGC)		1,535,145
	1,440	Fremont Community Facs. Dist. No. 1, Special Tax, Pacific Commons, 5.30%, 9/1/30		1,458,965
		Golden State Tobacco Securitization Corp. Rev.,
	13,885	5.00%, 6/1/45 (AMBAC-TCRS)		14,433,596
	3,500	5.00%, 6/1/45, Ser. A		3,638,285
	6,000	5.00%, 6/1/45, Ser. A (FGIC-TCRS)		6,237,060
	8,500	5.125%, 6/1/47, Ser. A-1		7,448,635
	30,415	5.75%, 6/1/47, Ser. A-1		28,565,768
		Health Facs. Financing Auth. Rev.,
	250	Adventist Health System, 5.75%, 9/1/39, Ser. A		287,460
	3,000	Catholic Healthcare West, 6.00%, 7/1/39, Ser. A		3,512,490
	1,000	Children’s Hospital of Los Angeles, 5.00%, 11/15/34, Ser. A		1,070,680
	500	Children’s Hospital of Orange Cnty., 6.50%, 11/1/38, Ser. A		596,780
	9,000	Scripps Health, 5.00%, 11/15/40, Ser. A		9,821,250
	3,700	Stanford Hospital, 5.25%, 11/15/40, Ser. A-2		4,135,342
	1,000	Sutter Health, 5.00%, 8/15/35, Ser. D		1,085,230
	4,220	Sutter Health, 5.00%, 11/15/42, Ser. A (IBC-NPFGC)		4,443,238
	6,000	Sutter Health, 5.00%, 8/15/52, Ser. A		6,368,820
	12,195	Sutter Health, 5.25%, 11/15/46, Ser. A (g)		12,987,553
	4,500	Imperial Irrigation Dist. Rev., 5.00%, 11/1/41, Ser. B		4,791,735
	175	Infrastructure & Economic Dev. Bank Rev., 5.25%, 2/1/38		189,450
	515	Irvine Unified School Dist., Special Tax, 6.70%, 9/1/35		573,195
	1,000	Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39		1,120,680
	500	Long Beach Airport Rev., 5.00%, 6/1/40, Ser. A		531,160
	7,500	Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, 5.50%, 11/15/37, Ser. A		8,815,125
	10,000	Long Beach Unified School Dist., GO, 5.25%, 8/1/33, Ser. A (g)		11,578,200
	2,000	Los Angeles Department of Airports Rev., 5.00%, 5/15/40, Ser. D		2,195,120
		Los Angeles Department of Water & Power Rev.,
	15,000	4.75%, 7/1/30, Ser. A-2 (AGM) (g)		15,789,150
	8,000	5.00%, 7/1/36, Ser. B		8,945,440
	500	5.00%, 7/1/43, Ser. B		551,720


18		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
$	11,000	Los Angeles Unified School Dist., GO, 5.00%, 1/1/34, Ser. I	$	12,427,690
	3,200	M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B		4,224,928
	10,000	Manteca Redev. Agcy., Tax Allocation, 5.00%, 10/1/36 (AMBAC)		9,850,400
	4,000	Merced Cnty., Juvenile Justice Correctional Fac., CP, 5.00%, 6/1/32 (AMBAC)		4,004,840
	5,000	Metropolitan Water Dist. of Southern California Rev., 5.00%, 7/1/37, Ser. A (g)		5,456,700
	1,175	Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B		1,381,953
	5,000	Oakland Unified School Dist., Alameda Cnty., GO, 6.125%, 8/1/29, Ser. A		5,477,250
	4,750	Palomar Pomerado Health, CP, 6.75%, 11/1/39		5,321,947
	10,000	Placentia-Yorba Linda Unified School Dist., CP, 5.00%, 10/1/32 (FGIC-NPFGC)		10,360,700
	1,500	Pollution Control Financing Auth. Rev., American Water Capital Corp. Project, 5.25%, 8/1/40 (a)(d)		1,615,590
		Poway Unified School Dist., GO,
	11,000	zero coupon, 8/1/40		2,954,490
	16,000	zero coupon, 8/1/46		3,152,320
	1,950	Riverside, CP, 5.00%, 9/1/33 (AMBAC) (Pre-refunded @ $100, 9/1/13) (c)		1,972,386
	2,000	Roseville Redev. Agcy., Tax Allocation, 5.00%, 9/1/32, Ser. B (NPFGC)		2,008,480
	1,375	Ross Valley School Dist., GO, 5.00%, 8/1/42, Ser. B		1,535,311
	1,000	San Diego Public Facs. Financing Auth. Sewer Rev., 5.25%, 5/15/39, Ser. A		1,140,340
	4,000	San Diego Public Facs. Financing Auth. Water Rev., 5.25%, 8/1/38, Ser. A		4,508,200
	2,800	San Diego Regional Building Auth. Rev., Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A		3,187,156
	2,800	San Diego Unified School Dist., GO, 4.75%, 7/1/27, Ser. D-2 (AGM)		2,936,136
	1,000	San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36		1,187,350
	1,300	San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A		1,414,166
	1,260	Santa Cruz Cnty., CP, 5.25%, 8/1/32		1,276,267
	1,500	Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community, 7.00%, 9/1/36, Ser. A		1,771,575
		State, GO,
	2,500	5.00%, 9/1/31		2,732,350
	10,000	6.00%, 4/1/38		11,897,000
		State Public Works Board Rev.,
	3,000	5.75%, 10/1/30, Ser. G-1		3,464,280
	2,000	California State Univ., 6.00%, 11/1/34, Ser. J		2,360,000
	2,000	Judicial Council Projects, 5.00%, 12/1/29, Ser. D		2,192,500
	2,500	Judicial Council Projects, 5.00%, 3/1/38, Ser. A (b)		2,689,425
	7,915	Regents Univ., 5.00%, 3/1/33, Ser. A		8,715,681
		Statewide Communities Dev. Auth. Rev.,
	1,165	Bentley School, zero coupon, 7/1/50 (b)		52,076
	3,760	Bentley School, 7.00%, 7/1/40, Ser. A		4,304,598
	1,520	Catholic Healthcare West, 5.50%, 7/1/31, Ser. D		1,681,196
	1,520	Catholic Healthcare West, 5.50%, 7/1/31, Ser. E		1,681,196
	250	Huntington Park Charter School Project, 5.15%, 7/1/30, Ser. A		237,725
	1,250	Huntington Park Charter School Project, 5.25%, 7/1/42, Ser. A		1,155,537
	500	International School of the Peninsula Project, 5.00%, 11/1/29		491,195
	1,000	Lancer Student Housing Project, 7.50%, 6/1/42		1,138,530
	9,700	Los Angeles Jewish Home, 5.50%, 11/15/33 (CA Mtg. Ins.)		9,847,537


Annual Report \|		May 31, 2013			19

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
$	2,135	Methodist Hospital Project, 6.625%, 8/1/29 (FHA)	$	2,593,705
	7,860	Methodist Hospital Project, 6.75%, 2/1/38 (FHA)		9,373,443
	3,700	St. Joseph Health System, 5.75%, 7/1/47, Ser. A (FGIC)		4,127,424
	5,600	Sutter Health, 6.00%, 8/15/42, Ser. A		6,659,632
	4,500	Univ. of California Irvine E. Campus, 5.375%, 5/15/38		4,920,660
	1,800	Tobacco Securitization Agcy. Rev., Stanislaus Cnty., 5.875%, 6/1/43, Ser. A		1,802,196
	3,100	Torrance Rev., Torrance Memorial Medical Center, 5.00%, 9/1/40, Ser. A		3,321,154
	1,000	Tustin Unified School Dist., Special Tax, 6.00%, 9/1/40, Ser. 2006-1		1,048,880
	15,000	Univ. of California Rev., 5.00%, 5/15/42, Ser. G		16,569,300
		Total California Municipal Bonds & Notes (cost-$363,905,040)		415,339,480

	California Variable Rate Notes (a)(d)(e)(f) – 5.9%
	6,035	Desert Community College Dist., GO, 7.99%, 8/1/32, Ser. 3016-1 (AGC)		7,386,237
	7,500	JPMorgan Chase Putters/Drivers Trust Rev., 8.015%, 5/15/40, Ser. 3838		8,943,750
	4,000	Los Angeles Community College Dist., GO, 11.746%, 8/1/33, Ser. 3096		5,385,920
	5,000	San Diego Community College Dist., GO, 8.463%, 2/1/17		6,462,150
		Total California Variable Rate Notes (cost-$22,311,952)		28,178,057

	Other Municipal Bonds & Notes – 5.2%
	Arizona – 1.5%
	6,400	Salt Verde Financial Corp. Rev., 5.00%, 12/1/37		7,022,912
	New Jersey – 0.7%
		Tobacco Settlement Financing Corp. Rev., Ser. 1-A,
	1,300	4.75%, 6/1/34		1,148,472
	2,700	5.00%, 6/1/41		2,389,149
				3,537,621
	New York – 0.7%
	1,250	Liberty Dev. Corp. Rev., Goldman Sachs Headquarters, 5.25%, 10/1/35		1,448,800
	1,900	TSASC, Inc. Rev., 5.00%, 6/1/34, Ser. 1		1,685,243
				3,134,043
	Rhode Island – 2.3%
	11,000	Tobacco Settlement Financing Corp. Rev., 6.25%, 6/1/42, Ser. 2002-A		11,221,320
		Total Other Municipal Bonds & Notes (cost-$20,883,563)		24,915,896

	Short-Term Investments – 2.4%
	U.S. Treasury Obligations – 2.4%
	4,300	U.S. Treasury Bills, 0.084%, 2/6/14 (h)		4,297,536
		U.S. Treasury Notes,
	5,500	0.25%, 4/30/14		5,505,803
	538	1.25%, 2/15/14		542,329
	262	1.25%, 3/15/14		264,313
	800	1.875%, 4/30/14		812,625
		Total U.S. Treasury Obligations (cost-$11,422,438)		11,422,606
		Total Investments (cost-$418,522,993) – 100.0%	$	479,856,039


20		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013 (continued)

Industry classification of portfolio holdings as a percentage of total investments at May 31, 2013 was as follows:


Revenue Bonds:
Health, Hospital & Nursing Home Revenue	17.9	%
Tobacco Settlement Funded	16.4
College & University Revenue	5.8
Highway Revenue Tolls	4.9
Natural Gas Revenue	4.4
Water Revenue	4.4
Electric Power & Light Revenue	4.3
Lease (Abatement)	2.9
Port, Airport & Marina Revenue	2.4
Local or Guaranteed Housing	1.0
Private Schools	1.0
Miscellaneous Revenue	0.3
Lease Revenue	0.3
Hotel Occupancy Tax	0.3
Sewer Revenue	0.2
Recreational Revenue	0.0

Total Revenue Bonds			66.5	%
General Obligation			18.7
Certificates of Participation			6.7
Tax Allocation			5.0
U.S. Treasury Notes			1.5
U.S. Treasury Bills			0.9
Special Tax			0.7

Total Investments			100.0	%

Notes to Schedule of Investments:

(a)

Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $29,793,647, representing 6.2% of total investments.

(b)

Illiquid.

(c)

(d)

(e)

(f)

(g)

(h)

Rates reflect the effective yields at purchase date.

(i)

Floating Rate Notes for the year ended May 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended May 31, 2013 was $41,133,596 at a weighted average interest rate, including fees, of 0.77%.


Annual Report \|		May 31, 2013			21

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013 (continued)

(j)

Interest rate swap agreements outstanding at May 31, 2013:

OTC

swap agreements:


	Notional Amount (000s)		Termination Date		Rate Type				Value		Upfront Premiums Received			Unrealized Appreciation
Swap Counterparty	Notional Amount (000s)		Termination Date		Payments Made	Payments Received			Value		Upfront Premiums Received			Unrealized Appreciation
Bank of America	$	38,000		9/5/18	3-Month USD-LIBOR		1.60	%	$	93,451	$	(11,485	)	$	104,936
Citigroup		15,000		11/20/22	3-Month USD-LIBOR		2.65	%		3,740		(10,985	)		14,725

									$	97,191	$	(22,470	)	$	119,661

(k)

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


	Level 1 Quoted Prices		Level 2 Other Significant Observable Inputs		Level 3 Significant Unobservable Inputs		Value at 5/31/13
Investments in Securities – Assets

California Municipal Bonds & Notes	$	—	$	415,339,480	$	—	$	415,339,480
California Variable Rate Notes		—		28,178,057		—		28,178,057
Other Municipal Bonds & Notes		—		24,915,896		—		24,915,896
Short-Term Investments		—		11,422,606		—		11,422,606
		—		479,856,039		—		479,856,039
*Other Financial Instruments – Assets**

Interest Rate Contracts		—		119,661		—		119,661
Totals	$	—	$	479,975,700	$	—	$	479,975,700

At May 31, 2013, there were no transfers between Levels 1 and 2.

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the year ended May 31, 2013, was as follows:


	Beginning Balance 5/31/12	Purchases	Sales	Accrued Discount (Premiums)		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation/ Depreciation		Transfers into Level 3		Transfers out of Level 3		Ending Balance 5/31/13
Investments in Securities – Assets
California Municipal Bonds & Notes	$941,850	$—	$(532,612)	$	—	$	(832,388	)	$	423,150	$	—	$	—	$	—

Other financial instruments are derivatives, such as swap agreements, which are valued at the unrealized appreciation (depreciation) of the instrument.

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


22		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO California Municipal Income Fund II

May 31, 2013 (continued)

(l)

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

The effect of derivatives on the Statement of Assets and Liabilities at May 31, 2013:


Location	Interest Rate Contracts
Asset derivatives:
Unrealized appreciation of OTC swaps	$	119,661

The effect of derivatives on the Statement of Operations for the year ended May 31, 2013:


Location	Interest Rate Contracts
Net realized loss on:
Swaps	$	(119,700	)

Net change in unrealized appreciation/depreciation of:
Swaps	$	119,661

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended May 31, 2013:


Interest Rate Swap Agreements⁽¹⁾		$10,600

⁽¹⁾

Notional Amount (in thousands)

Glossary:


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


See accompanying Notes to Financial Statements \|		May 31, 2013 \|		Annual Report			23

Schedule of Investments

PIMCO New York Municipal Income Fund II

May 31, 2013


Principal Amount (000s)			Value
	New York Municipal Bonds & Notes – 91.1%
$	1,000	Chautauqua Cnty. Industrial Dev. Agcy. Rev., Dunkirk Power Project, 5.875%, 4/1/42	$	1,123,460
	150	Erie Cnty. Industrial Dev. Agcy. Rev., Orchard Park, Inc. Project, 6.00%, 11/15/36, Ser. A		153,119
		Hudson Yards Infrastructure Corp. Rev., Ser. A,
	1,000	5.25%, 2/15/47		1,103,620
	9,000	5.75%, 2/15/47		10,296,360
		Liberty Dev. Corp. Rev.,
	1,400	Bank of America Tower at One Bryant Park Project, 5.625%, 7/15/47		1,576,806
	1,300	Bank of America Tower at One Bryant Park Project, 6.375%, 7/15/49		1,521,338
	4,120	Goldman Sachs Headquarters, 5.25%, 10/1/35 (g)		4,775,245
	3,000	Goldman Sachs Headquarters, 5.25%, 10/1/35		3,477,120
	3,500	Goldman Sachs Headquarters, 5.50%, 10/1/37		4,194,925
	500	Long Island Power Auth. Rev., 5.00%, 9/1/34, Ser. A (AMBAC)		512,235
		Metropolitan Transportation Auth. Rev.,
	2,000	5.00%, 11/15/30, Ser. D		2,251,460
	2,000	5.00%, 11/15/34, Ser. B		2,214,240
	3,000	5.00%, 11/15/43, Ser. B		3,233,880
	5,000	5.50%, 11/15/39, Ser. A		5,712,500
	7,000	Monroe Cnty. Industrial Dev. Corp. Rev., Unity Hospital Rochester Project, 5.50%, 8/15/40 (FHA)		7,871,500
	2,400	Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A		1,361,136
	1,500	New York City Health & Hospital Corp. Rev., 5.00%, 2/15/30, Ser. A		1,670,085
		New York City Industrial Dev. Agcy. Rev.,
	1,415	Liberty Interactive Corp., 5.00%, 9/1/35		1,459,318
	1,500	Pilot Queens Baseball Stadium, 6.50%, 1/1/46 (AGC)		1,699,995
	1,500	United Jewish Appeal Federation Project, 5.00%, 7/1/27, Ser. A		1,565,805
	750	Yankee Stadium, 5.00%, 3/1/31 (FGIC)		791,918
	1,900	Yankee Stadium, 5.00%, 3/1/36 (NPFGC)		1,990,668
	4,900	Yankee Stadium, 7.00%, 3/1/49 (AGC)		5,914,496
		New York City Transitional Finance Auth. Rev.,
	10	5.00%, 11/1/27, Ser. B		10,033
	4,850	5.00%, 5/1/39, Ser. F-1		5,394,509
	5,000	5.25%, 1/15/39, Ser. S-3		5,695,900
	2,000	New York City Trust for Cultural Res. Rev., Wildlife Conservation Society, 5.00%, 8/1/33, Ser. A		2,319,360
		New York City Water & Sewer System Rev.,
	1,000	5.25%, 6/15/40, Ser. EE		1,127,330
	500	Second Generation Resolutions, 5.00%, 6/15/39, Ser. GG-1		551,285
		New York Liberty Dev. Corp. Rev.,
	3,000	1 World Trade Center Project, 5.00%, 12/15/41		3,306,030
	10,000	4 World Trade Center Project, 5.75%, 11/15/51		11,521,900
	1,000	Onondaga Cnty. Rev., Syracuse Univ. Project, 5.00%, 12/1/36		1,112,440
	1,400	Port Auth. of New York & New Jersey Rev., JFK International Air Terminal, 6.00%, 12/1/36		1,654,086


24		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO New York Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
		State Dormitory Auth. Rev.,
$	3,000	5.00%, 3/15/38, Ser. A	$	3,319,350
	2,500	5.00%, 2/15/40, Ser. D		2,761,125
	4,000	5.00%, 7/1/42, Ser. A		4,439,840
	7,490	5.50%, 5/15/31, Ser. A (AMBAC)		9,370,364
	2,600	Catholic Health of Long Island, 5.10%, 7/1/34		2,687,854
	1,500	Fordham Univ., 5.50%, 7/1/36, Ser. A		1,698,075
	2,750	Memorial Sloan-Kettering Cancer Center, 5.00%, 7/1/35, Ser. 1		2,914,367
	2,000	Memorial Sloan-Kettering Cancer Center, 5.00%, 7/1/36, Ser. A-1		2,165,320
	2,000	Mount Sinai Hospital, 5.00%, 7/1/31, Ser. A		2,218,240
	2,100	New York Univ., 5.00%, 7/1/38, Ser. A		2,329,572
	1,000	New York Univ. Hospital Center, 5.625%, 7/1/37, Ser. B		1,104,340
	600	North Shore-Long Island Jewish Health System, 5.50%, 5/1/37, Ser. A		665,526
	5,000	Rochester General Hospital, 5.00%, 12/1/35 (Radian) (Pre-refunded @ $100 12/1/15) (c)		5,565,050
	3,000	Teachers College, 5.50%, 3/1/39		3,234,900
	1,000	The New School, 5.50%, 7/1/40		1,124,980
	3,000	Yeshiva Univ., 5.125%, 7/1/34 (AMBAC)		3,063,510
	5,000	State Environmental Facs. Corp. Rev., 5.125%, 6/15/38, Ser. A		5,721,150
		State Thruway Auth. Rev.,
	1,000	4.75%, 1/1/29, Ser. G (AGM)		1,051,990
	3,800	5.00%, 1/1/42, Ser. I		4,136,642
	6,000	State Urban Dev. Corp. Rev., 5.00%, 3/15/36, Ser. B-1 (g)		6,648,780
	5,000	Triborough Bridge & Tunnel Auth. Rev., 5.25%, 11/15/34, Ser. A-2 (g)		5,750,700
	3,435	Troy Capital Res. Corp. Rev., Rensselaer Polytechnic Institute Project, 5.125%, 9/1/40, Ser. A		3,711,449
		TSASC, Inc. Rev., Ser. 1,
	5,000	5.00%, 6/1/26		4,943,550
	5,000	5.00%, 6/1/34		4,434,850
	1,815	Ulster Cnty. Industrial Dev. Agcy. Rev., 6.00%, 9/15/37, Ser. A (b)		1,271,408
	2,000	Warren & Washington Cntys. Industrial Dev. Agcy. Rev., Glens Falls Hospital Project, 5.00%, 12/1/35, Ser. A (AGM)		2,013,440
	1,490	Westchester Cnty. Healthcare Corp. Rev., 6.125%, 11/1/37, Ser. C-2		1,736,818
	1,000	Yonkers Economic Dev. Corp. Rev., Charter School of Educational Excellence Project, 6.00%, 10/15/30, Ser. A		1,054,590
	600	Yonkers Industrial Dev. Agcy. Rev., Sarah Lawrence College Project, 6.00%, 6/1/41, Ser. A		679,026
		Total New York Municipal Bonds & Notes (cost-$176,329,874)		190,980,908

	Other Municipal Bonds & Notes – 4.7%
	Florida – 0.5%
	1,000	Clearwater Water & Sewer Rev., 5.25%, 12/1/39, Ser. A		1,105,680
	Louisiana – 0.6%
	1,000	East Baton Rouge Sewerage Commission Rev., 5.25%, 2/1/39, Ser. A		1,132,320


Annual Report \|		May 31, 2013			25

Schedule of Investments

PIMCO New York Municipal Income Fund II

May 31, 2013 (continued)


Principal Amount (000s)			Value
	Ohio – 3.1%
		Buckeye Tobacco Settlement Financing Auth. Rev., Ser. A-2,
$	1,435	5.875%, 6/1/47	$	1,292,921
	5,315	6.50%, 6/1/47		5,166,233
				6,459,154
	U.S. Virgin Islands – 0.5%
	1,000	Public Finance Auth. Rev., 6.00%, 10/1/39, Ser. A		1,118,380
		Total Other Municipal Bonds & Notes (cost-$9,170,199)		9,815,534

	New York Variable Rate Notes – 3.0%
	5,000	JPMorgan Chase Putters/Drivers Trust Rev., 7.961%, 7/1/33, Ser. 3382 (a)(d)(e)(f) (cost-$4,884,076)		6,309,850

	Short-Term Investments – 1.2%
	U.S. Treasury Obligations – 1.2%
		U.S. Treasury Notes,
	200	0.125%, 12/31/13		200,047
	1,800	0.25%, 4/30/14		1,801,899
	262	1.25%, 3/15/14		264,313
	300	1.875%, 4/30/14		304,734
		Total U.S. Treasury Obligations (cost-$2,570,857)		2,570,993
		Total Investments (cost-$192,955,006) – 100.0%	$	209,677,285

Industry classification of portfolio holdings as a percentage of total investments at May 31, 2013 was as follows:


Revenue Bonds:
Health, Hospital & Nursing Home Revenue	15.9	%
College & University Revenue	13.2
Industrial Revenue	10.3
Miscellaneous Revenue	9.6
Income Tax Revenue	8.7
Tobacco Settlement Funded	7.6
Transit Revenue	6.4
Miscellaneous Taxes	5.4
Highway Revenue Tolls	5.2
Lease (Abatement)	4.5
Recreational Revenue	4.1
Water Revenue	4.1
Port, Airport & Marina Revenue	2.4
Economic Development Revenue	0.7
Sewer Revenue	0.5
Electric Power & Light Revenue	0.2

Total Revenue Bonds			98.8	%
U.S. Treasury Notes			1.2

Total Investments			100.0	%


26		May 31, 2013 \|		Annual Report

Schedule of Investments

PIMCO New York Municipal Income Fund II

May 31, 2013 (continued)

Notes to Schedule of Investments:

(a)

Private Placement – Restricted as to resale and may not have a readily available market. Security with a value of $6,309,850, representing 3.0% of total investments.

(b)

Illiquid.

(c)

(d)

(e)

(f)

(g)

(h)

Floating Rate Notes for the year ended May 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the year ended May 31, 2013 was $13,657,374 at a weighted average interest rate, including fees, of 0.81%.

(i)

Interest rate swap agreements outstanding at May 31, 2013:

OTC

swap agreements:


	Notional Amount (000s)		Termination Date		Rate Type				Value		Upfront Premiums Received			Unrealized Appreciation
Swap Counterparty	Notional Amount (000s)		Termination Date		Payments Made	Payments Received			Value		Upfront Premiums Received			Unrealized Appreciation
Bank of America	$	24,000		9/5/18	3-Month USD-LIBOR		1.60	%	$	59,040	$	(18,658	)	$	77,698
Citigroup		12,000		11/20/22	3-Month USD-LIBOR		2.65	%		2,992		(8,788	)		11,780

									$	62,032	$	(27,446	)	$	89,478

(j)

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


	Level 1 Quoted Prices		Level 2 Other Significant Observable Inputs		Level 3 Significant Unobservable Inputs		Value at 5/31/13
Investments in Securities – Assets

New York Municipal Bonds & Notes	$	—	$	190,980,908	$	—	$	190,980,908
Other Municipal Bonds & Notes		—		9,815,534		—		9,815,534
New York Variable Rate Notes		—		6,309,850		—		6,309,850
Short-Term Investments		—		2,570,993		—		2,570,993
		—		209,677,285		—		209,677,285
*Other Financial Instruments – Assets**

Interest Rate Contracts		—		89,478		—		89,478
Totals	$	—	$	209,766,763	$	—	$	209,766,763

At May 31, 2013, there were no transfers between Levels 1 and 2.

Other financial instruments are derivatives, such as swap agreements, which are valued at the unrealized appreciation (depreciation) of the instrument.


Annual Report \|		May 31, 2013			27

Schedule of Investments

PIMCO New York Municipal Income Fund II

May 31, 2013 (continued)

(k)

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

The effect of derivatives on the Statement of Assets and Liabilities at May 31, 2013:


Location	Interest Rate Contracts
Asset derivatives:
Unrealized appreciation of OTC swaps	$	89,478

The effect of derivatives on the Statement of Operations for the year ended May 31, 2013:


Location	Interest Rate Contracts
Net realized loss on:
Futures contracts	$	(74,416	)
Swaps		(89,486	)

Total net realized loss	$	(163,902	)

Net change in unrealized appreciation/depreciation of:
Futures contracts	$	40,648
Swaps		89,478

Total net change in unrealized appreciation/depreciation	$	130,126

The average volume (measured at each fiscal quarter-end) of derivative activity during the year ended May 31, 2013:

Futures

Contracts
Short⁽¹⁾

Interest
Rate Swap
Agreements⁽²⁾

(4)

$7,200

⁽¹⁾

Number of contracts

⁽²⁾

Notional Amount (in thousands)

Glossary:


AGC	-	insured by Assured Guaranty Corp.
AGM	-	insured by Assured Guaranty Municipal Corp.
AMBAC	-	insured by American Municipal Bond Assurance Corp.
FGIC	-	insured by Financial Guaranty Insurance Co.
FHA	-	insured by Federal Housing Administration
LIBOR	-	London Inter-Bank Offered Rate
NPFGC	-	insured by National Public Finance Guarantee Corp.
OTC	-	Over-the-Counter
Radian	-	insured by Radian Guaranty, Inc.


28		Annual Report \|		May 31, 2013 \|		See accompanying Notes to Financial Statements

Statements of Assets and Liabilities

PIMCO Municipal Income Funds II

May 31, 2013



	Municipal II		California Municipal II		New York Municipal II

Assets:
Investments, at value (cost-$1,011,015,016, $418,522,993 and $192,955,006, respectively)		$1,114,487,044		$479,856,039		$209,677,285
Cash		482,006		544,377		541,722
Receivable for investments sold		61,191,542		17,435,740		6,787,070
Interest receivable		18,573,668		6,921,871		3,051,130
Unrealized appreciation of OTC swaps		334,300		119,661		89,478
Prepaid expenses and other assets		50,691		45,800		22,437
Total Assets		1,195,119,251		504,923,488		220,169,122

Liabilities:
Payable for Floating Rate Notes issued		44,317,277		38,098,801		8,186,394
Payable for investments purchased		37,043,552		18,997,029		8,004,908
Payable for swaps purchased		230,690		97,230		62,040
Dividends payable to common and preferred shareholders		3,964,524		1,978,978		725,323
Investment management fees payable		619,414		249,008		113,642
Swap premiums received		103,610		22,470		27,446
Interest payable		88,847		63,496		14,760
Accrued expenses and other liabilities		383,784		235,541		349,451
Total Liabilities		86,751,698		59,742,553		17,483,964
Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 14,680, 6,520 and 3,160 shares issued and outstanding, respectively)		367,000,000		163,000,000		79,000,000
Net Assets Applicable to Common Shareholders		$741,367,553		$282,180,935		$123,685,158

Composition of Net Assets Applicable to Common Shareholders:
Common Shares:
Par value ($0.00001 per share)		$609		$316		$109
Paid-in-capital in excess of par		810,503,939		411,555,250		147,871,647
Undistributed (dividends in excess of) net investment income		22,643,835		(2,098,678)		1,873,593
Accumulated net realized loss		(195,580,458)		(188,730,715)		(42,861,946)
Net unrealized appreciation		103,799,628		61,454,762		16,801,755
Net Assets Applicable to Common Shareholders		$741,367,553		$282,180,935		$123,685,158
Common Shares Issued and Outstanding		60,896,627		31,610,327		10,927,322
Net Asset Value Per Common Share		$12.17		$8.93		$11.32


See accompanying Notes to Financial Statements \|		May 31, 2013 \|		Annual Report			29

Statements of Operations

PIMCO Municipal Income Funds II

Year ended May 31, 2013



	Municipal II		California Municipal II		New York Municipal II

Investment Income:
Interest		$59,149,149		$25,520,084		$10,406,726

Expenses:
Investment management		7,250,067		2,904,736		1,338,320
Auction agent and commissions		582,297		275,949		131,823
Interest		390,570		316,631		110,695
Custodian and accounting agent		135,990		97,828		65,920
Shareholder communications		94,261		39,926		23,277
Trustees		84,057		32,434		14,709
New York Stock Exchange listing		50,171		26,007		21,976
Audit and tax services		46,274		61,351		42,546
Legal		35,613		14,997		11,603
Transfer agent		34,396		34,397		32,433
Insurance		24,838		12,323		7,969
Miscellaneous		15,905		13,644		11,991
Total Expenses		8,744,439		3,830,223		1,813,262
Less: investment management fees waived		(44,626)		(17,814)		(8,296)
custody credits earned on cash balances		(3,948)		(2,157)		(3,219)
Net Expenses		8,695,865		3,810,252		1,801,747

Net Investment Income		50,453,284		21,709,832		8,604,979

Realized and Change in Unrealized Gain (Loss):
Net realized gain (loss) on:
Investments		4,812,483		3,227,999		456,665
Futures contracts		(372,078)		–		(74,416)
Swaps		(334,300)		(119,700)		(89,486)
Net change in unrealized appreciation/depreciation of:
Investments		9,181,525		7,580,345		(743,057)
Futures contracts		203,238		–		40,648
Swaps		334,300		119,661		89,478
Net realized and change in unrealized gain (loss)		13,825,168		10,808,305		(320,168)
Net Increase in Net Assets Resulting from Investment Operations		64,278,452		32,518,137		8,284,811
Dividends on Preferred Shares from Net Investment Income		(901,014)		(402,646)		(194,449)
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations		$63,377,438		$32,115,491		$8,090,362


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

[THIS PAGE INTENTIONALLY LEFT BLANK]


Annual Report \|		May 31, 2013			31

Statements of Changes in Net Assets

Applicable to Common Shareholders

PIMCO Municipal Income Funds II



	Municipal II
	Year ended May 31, 2013		Year ended May 31, 2012
Investment Operations:
Net investment income		$50,453,284		$53,422,247
Net realized gain (loss)		4,106,105		(14,470,319)
Net change in unrealized appreciation/depreciation		9,719,063		117,235,329
Net increase in net assets resulting from investment operations		64,278,452		156,187,257
Dividends on Preferred Shares from Net Investment Income		(901,014)		(844,983)
Net increase in net assets applicable to common shareholders resulting from investment operations		63,377,438		155,342,274

Dividends to Common Shareholders from:
Net investment income		(47,407,514)		(47,201,725)
Return of capital		–		–
Total dividends and distributions to common shareholders		(47,407,514)		(47,201,725)

Common Share Transactions:
Reinvestment of dividends		3,236,891		3,220,671
Total increase in net assets applicable to common shareholders		19,206,815		111,361,220

Net Assets Applicable to Common Shareholders:
Beginning of year		722,160,738		610,799,518
End of year*		$741,367,553		$722,160,738
*Including undistributed (dividends in excess of) net investment income of:		$22,643,835		$20,835,879

Common Shares Issued in Reinvestment of Dividends		257,784		295,661


32		Annual Report \|		May 31, 2013 \|		See accompanying Notes to Financial Statements

Statements of Changes in Net Assets

Applicable to Common Shareholders (continued)

PIMCO Municipal Income Funds



California Municipal II			New York Municipal II
Year ended May 31, 2013	Year ended May 31, 2012		Year ended May 31, 2013		Year ended May 31, 2012

$21,709,832		$22,432,123		$8,604,979		$9,095,315
3,108,299		(6,106,658)		292,763		(3,777,108)
7,700,006		47,433,034		(612,931)		17,268,915
32,518,137		63,758,499		8,284,811		22,587,122
(402,646)		(383,285)		(194,449)		(181,888)
32,115,491		63,375,214		8,090,362		22,405,234


(21,313,126)		(22,056,823)		(8,669,854)		(8,629,270)
(2,354,016)		(1,522,981)		–		–
(23,667,142)		(23,579,804)		(8,669,854)		(8,629,270)


1,162,949		1,288,406		597,357		635,052
9,611,298		41,083,816		17,865		14,411,016


272,569,637		231,485,821		123,667,293		109,256,277
$282,180,935		$272,569,637		$123,685,158		$123,667,293
$(2,098,678)		$(1,973,038)		$1,873,593		$2,232,908

113,525		142,977		47,813		58,575


See accompanying Notes to Financial Statements \|		May 31, 2013 \|		Annual Report			33

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies

PIMCO Municipal Income Fund II (‘‘Municipal II’’), PIMCO California Municipal Income Fund II (‘‘California Municipal II’’) and PIMCO New York Municipal Income Fund II (‘‘New York Municipal II’’), (each a “Fund” and collectively referred to as the ‘‘Funds’’ or ‘‘PIMCO Municipal Income Funds II’’), were organized as Massachusetts business trusts on March 29, 2002. Prior to commencing operations on June 28, 2002, the Funds had no operations other than matters relating to their organization and registration as non-diversified, closed-end management investment companies registered under the Investment Company Act of 1940 and the rules and regulations thereunder, as amended. Allianz Global Investors Fund Management LLC (the “Investment Manager”) and Pacific Investment Management Company LLC (“PIMCO” or the “Sub-Adviser”) serve as the Funds’ investment manager and sub-adviser, respectively, and are both indirect, wholly-owned subsidiaries of Allianz Asset Management of America L.P. (“AAM”). AAM is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has authorized an unlimited amount of common shares with $0.00001 par value.

Under normal market conditions, Municipal II invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from U.S. federal income taxes. Under normal market conditions, California Municipal II invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal and California state income taxes. Under normal market conditions, New York Municipal II invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal, New York State and New York City income taxes. There can be no

assurance that the Funds will meet their stated objectives. The Funds will generally seek to avoid investing in bonds generating interest income which could potentially subject individuals to alternative minimum tax. The issuers’ abilities to meet their obligations may be affected by economic and political developments in a specific state or region.

The preparation of the Funds’ financial statements in accordance with accounting principles generally accepted in the United States of America requires the Funds’ management to make estimates and assumptions that affect the reported amounts and disclosures in each Fund’s financial statements. Actual results could differ from those estimates.

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

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures About Offsetting Assets and Liabilities”, as amended in January 2013 by the issued ASU No. 2013-01, which requires enhanced disclosures that will enable users to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The amendments are effective for fiscal years beginning on or after January 1, 2013. The Funds’ management is currently evaluating the effect that the guidance may have on the Funds’ financial statements.


34		May 31, 2013 \|		Annual Report

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies (continued)

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

(a) Valuation of Investments

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

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

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

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

The prices used by the Funds to value investments may differ from the value that would be realized if the investments were sold, and these differences could be material to the Funds’ financial statements. Each Fund’s net asset value (“NAV”) is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.

(b) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:

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

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


Annual Report \|		May 31, 2013			35

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies (continued)

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

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

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

Municipal Bonds & Notes and Variable Rate Notes – Municipal bonds & notes and variable rate notes are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and

bond or note insurance. To the extent that

these inputs are observable, the values of municipal bonds & notes and variable rate notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

Interest Rate Swaps – Over-the-counter (“OTC”) interest rate swaps are valued by independent pricing services using pricing models that are based on real-time intraday snapshots of relevant interest rate curves that are built using the most actively traded securities for a given maturity. The pricing models also incorporate cash and money market rates. In addition, market data pertaining to interest rate swaps is monitored regularly to ensure that interest rates are properly depicting the current market rate. To the extent that these inputs are observable, the values of interest rate swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

The valuation techniques used by the Funds to measure fair value during the year ended May 31, 2013 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

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


36		May 31, 2013 \|		Annual Report

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies (continued)

(c) Investment Transactions and Investment Income

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

(d) Federal Income Taxes

The Funds intend to distribute all of their taxable income and to comply with the other requirements of Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required.

Accounting for uncertainty in income taxes establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. Funds’ management has determined that its evaluation of the positions taken in the tax returns has resulted in no material impact to the Funds’ financial statements at May 31, 2013. The federal income tax returns for the prior three years remain subject to examination by the Internal Revenue Service.

(e) Dividends and Distributions – Common Shares

The Funds declare dividends from net investment income to common shareholders monthly. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions on the

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

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

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


Annual Report \|		May 31, 2013			37

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies (continued)

in the Funds’ Statements of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date.

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

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

In addition to general market risks, the Funds’ investments in Inverse Floaters may involve greater risk and volatility than an investment in a fixed rate bond, and the value of Inverse Floaters may decrease significantly when market interest rates increase. Inverse Floaters have varying degrees of liquidity, and the market for these securities may be volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates

decline or remain relatively stable. Although volatile, Inverse Floaters typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Trusts in which Inverse Floaters may be held could be terminated due to market, credit or other events beyond the Funds’ control, which could require the Funds to reduce leverage and dispose of portfolio investments at inopportune times and prices.

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

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

(h) Restricted Securities

The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally


38		May 31, 2013 \|		Annual Report

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

1. Organization and Significant Accounting Policies (continued)

may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.

(i) Repurchase Agreements.

The Funds enter into transactions with their custodian bank or securities brokerage firms whereby they purchase securities under agreements to resell such securities at an agreed upon price and date (“repurchase agreements”). The Funds, through their custodian, take possession of securities collateralizing the repurchase agreement. Such agreements are carried at the contract amount in the financial statements, which is considered to represent fair value. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, is held by the custodian bank for the benefit of the Funds until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Funds require that the market value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited.

(j) When-Issued/Delayed-Delivery Transactions.

When-issued or delayed-delivery transactions involve a commitment to purchase or sell securities for the predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Funds will set aside and maintain until the settlement

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

(k) Interest Expense

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

(l) Custody Credits on Cash Balances

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

2. Principal Risks

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

Interest rate risk is the risk that fixed income securities will decline in value because of


Annual Report \|		May 31, 2013			39

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

2. Principal Risks (continued)

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

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

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

The market values of securities may decline due to general market conditions (market risk)

which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities.

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

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


40		May 31, 2013 \|		Annual Report

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

2. Principal Risks (continued)

appreciation of the securities purchased with the leverage proceeds and could exceed the Funds’ investment returns, resulting in greater losses.

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

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

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

3. Financial Derivative Instruments

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

(a) Futures Contracts

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


Annual Report \|		May 31, 2013			41

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

3. Financial Derivative Instruments (continued)

imperfect correlation in the movements in the price of futures contracts, interest rates and underlying hedging assets, and possible inability or unwillingness of counterparties to meet the terms of their contracts.

(b) Swap Agreements

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

OTC swap payments received or made at the beginning of the measurement period are reflected as such on the Funds’ Statements of Assets and Liabilities and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). These upfront payments are recorded as realized gains or losses on the Funds’ Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the

termination of the swap is recorded as realized gain or loss on the Funds’ Statements of Operations. Net periodic payments received or paid by the Funds are included as part of realized gains or losses on the Funds’ Statements of Operations. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/depreciation on the Funds’ Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable, as applicable, for variation margin on centrally cleared swaps on the Funds’ Statements of Assets and Liabilities.

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

Interest Rate Swap Agreements – Interest rate swap agreements involve the exchange by the Funds with a counterparty of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments, with respect to the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself


42		May 31, 2013 \|		Annual Report

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

3. Financial Derivative Instruments (continued)

against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the counterparty may terminate the swap transaction in whole at zero cost by a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different money markets.

4. Investment Manager/Sub-Adviser

Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of each Fund’s Board, the Investment Manager is responsible for managing, either directly or through others selected by it, the Funds’ investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual

rate of 0.65% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that were outstanding. For the period July 1, 2011 through June 30, 2012, the Investment Manager voluntarily agreed to waive a portion of its fee for each Fund at the annual rate of 0.05% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that were outstanding. For the year ended May 31, 2013, each Fund paid investment management fees at an effective rate of 0.65% of each Fund’s average daily net assets, inclusive of net assets attributable to any Preferred Shares that were outstanding.

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

5. Investments in Securities

For the year ended May 31, 2013, purchases and sales of investments, other than short-term securities were:


	Municipal II		California Municipal II		New York Municipal II
Purchases	$	183,996,310	$	63,006,662	$	53,803,166
Sales		201,363,349		74,943,662		56,678,342

6. Income Tax Information

The tax character of dividends paid was:


	Year ended May 31, 2013						Year ended May 31, 2012
	Ordinary Income		Tax Exempt Income		Return of Capital		Ordinary Income		Tax Exempt Income		Return of Capital
Municipal II	$	458,232	$	47,850,296	$	—	$	465,597	$	47,581,111	$	—
California Municipal II		583,738		21,132,034		2,354,016		705,738		21,734,370		1,522,981
New York Municipal II		76,412		8,787,891		—		51,714		8,759,444		—


Annual Report \|		May 31, 2013			43

Notes to Financial Statements

PIMCO Municipal Income Funds II

May 31, 2013

6. Income Tax Information (continued)

At May 31, 2013, the components of distributable earnings were:


	Tax Exempt Income	Capital loss Caryforwards⁽¹⁾		Post-October Capital loss⁽²⁾
	Tax Exempt Income	Capital loss Caryforwards⁽¹⁾		Short-Term		Long-Term
Municipal II	$22,978,135	$	196,721,637	$	—	$	—
California Municipal II	—		188,566,070		—		—
New York Municipal II	1,963,079		42,820,315		20,433		—

(1)