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PIMCO Municipal Income Fund II
PIMCO launched the Municipal Income Fund II (PML) in 2002 as a closed-end fund designed to deliver high monthly income exempt from federal income tax.
PIMCO Municipal Income Fund II
PIMCO launched the Municipal Income Fund II (PML) in 2002 as a closed-end fund designed to deliver high monthly income exempt from federal income tax. The strategy is managed within PIMCO's broader municipal bond complex, which applies the same top-down macro analysis and bottom-up credit research that anchors the firm's $1.8 trillion fixed-income platform. The fund invests primarily in investment-grade municipal bonds and uses leverage — typically through tender option bonds — to amplify yield, a structural feature that distinguishes closed-end municipal funds from their open-end counterparts. The fund's portfolio spans essential-service revenue bonds, general obligation bonds, and pre-refunded securities across all 50 states, Puerto Rico, and other U.S. territories. Sector allocations concentrate on utilities, transportation, healthcare, and education — issuers with relatively inelastic revenue streams. PIMCO's municipal team, led by portfolio managers David Hammer and Julie Callahan, runs duration positioning actively within a band, historically between 5 and 8 years, adjusting for Federal Reserve rate cycles and municipal supply-demand technicals. The fund frequently holds bonds from the New York State Dormitory Authority, California general obligation issuances, and large public power agencies, alongside occasional positions in high-yield municipal names when credit spreads compensate for the risk. As a registered investment company traded on the New York Stock Exchange, PIMCO Municipal Income Fund II reports holdings quarterly and distributes income monthly. The fund has maintained a managed distribution policy, meaning the monthly payout can include return of capital in periods where net investment income alone does not cover the stated distribution — a mechanism common to many closed-end municipal funds. In March 2024, PIMCO announced a rights offering for the fund, allowing existing shareholders to subscribe for additional shares, a capital-raising tactic occasionally used by closed-end funds when shares trade at a premium or near net asset value. Structurally, the fund's closed-end wrapper creates a tension that defines the product: shares trade on an exchange at discounts or premiums to NAV, and the persistent discount has been a feature of the municipal closed-end fund sector since the 2013 taper tantrum. PIMCO manages the discount partly through the threat of open-market repurchases when shares trade below a certain threshold, and partly through marketing and distribution that targets retail and institutional buyers seeking yield in a tax-advantaged vehicle. The fund's governance sits with an independent board of trustees, and investment management is delegated to Pacific Investment Management Company LLC under a contractual advisory agreement that ties fees to total managed assets.
General information
Firm type
Fund of Funds
Year founded
2002
AUM
Undisclosed
Location
Region
North America
Country
United States
City
New York
Corporate office
New York, NY, United States
Principals
Dan Ivascyn
Group Chief Investment Officer
Sector focus
Frequently asked questions
Who manages the portfolio for PIMCO Municipal Income Fund II?
The fund is managed by PIMCO's municipal bond team, most recently led by portfolio managers David Hammer and Julie Callahan. They operate within the firm's broader fixed-income division under Group CIO Dan Ivascyn, drawing on PIMCO's 40-plus municipal credit analysts for issuer selection and surveillance.
What is the fund's approach to leverage?
PIMCO Municipal Income Fund II uses structural leverage, primarily through tender option bond programs, to amplify the yield on its underlying municipal bond portfolio. The fund's leverage ratio is disclosed in quarterly reports and has historically ranged between 35% and 45% of total managed assets, which is within typical parameters for closed-end municipal funds.
How should investors think about the fund's distribution policy?
The fund follows a managed distribution policy targeting a level monthly payout. When net investment income and realized capital gains are insufficient to cover the distribution, the difference is paid from fund assets — effectively a return of capital. This is disclosed in the fund's Section 19(a) notices and annual shareholder reports, and is a structural feature shared with many closed-end fixed-income funds rather than a sign of distress.
What types of municipal bonds does the fund typically hold?
The portfolio concentrates on investment-grade revenue bonds tied to essential services — water and sewer utilities, public power agencies, transportation authorities, and healthcare systems — alongside general obligation bonds of states and large municipalities. The credit team also maintains smaller tactical allocations to high-yield municipal issuers, including charter schools, continuing care retirement communities, and tobacco settlement bonds, when spreads are wide enough to justify the incremental risk.
How does the fund trade relative to its net asset value?
Closed-end fund shares trade on an exchange at a price that can diverge from NAV. PIMCO Municipal Income Fund II has historically traded at a discount to NAV, which was in the mid-single-digit range for much of the post-2020 period. PIMCO can narrow this discount through share repurchases when the board authorizes them, and rights offerings, such as the one announced in March 2024, can also affect the premium-discount dynamic.
Is taxable income possible from this fund?
Yes. While the fund's primary objective is federally tax-exempt income, portions of the distribution may be subject to the federal alternative minimum tax depending on the fund's allocation to private-activity bonds. Additionally, any capital gains distributions and returns of capital are taxable events for U.S. shareholders. State-level taxation depends on the percentage of the portfolio invested in the shareholder's home state.
What distinguishes PIMCO Municipal Income Fund II from PIMCO's other municipal closed-end funds?
PIMCO operates several municipal closed-end funds, including PIMCO Municipal Income Fund (PMF), PIMCO Municipal Income Fund II (PML), and PIMCO Municipal Income Fund III (PMX). The primary difference is vintage — launched in 2001, 2002, and 2002 respectively — meaning each fund holds a different legacy portfolio with distinct embedded interest-rate sensitivity and tax-loss carryforward profiles. Over time, portfolio management has converged the strategies, but the underlying bond portfolios are not identical, and each fund's premium-discount history and distribution rate can diverge.
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