PIMCO California Municipal INcome Fund
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21188

PIMCO California Municipal Income Fund III

(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: September 30, 2012

Date of reporting period: March 31, 2012

 

 

 


Table of Contents

Item 1. REPORT TO SHAREHOLDERS

 

LOGO


 

 

Semi-Annual Report

 

March 31, 2012

 

 

PIMCO Municipal Income Fund III

PIMCO California Municipal Income Fund III

PIMCO New York Municipal Income Fund III

 

LOGO


Table of Contents

Contents

 

Letter to Shareholders     2-3   
Fund Insights     4   
Performance & Statistics     5-6   
Schedules of Investments     7-22   
Statements of Assets and Liabilities     23   
Statements of Operations     24   
Statements of Changes in Net Assets     26-27   
Notes to Financial Statements     28-39   
Financial Highlights     40-42   
Annual Shareholder Meeting Results/Changes to Board of Trustees/Proxy Voting Policies & Procedures     43   
A Note Regarding Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements     44   

 

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LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

Dear Shareholder:

 

Municipal bond performance rose during the six-month period ended March 31, 2012. As the U.S. economy improved, investors shifted away from the perceived safety of U.S. Treasury bonds into higher-yielding debt instruments. This resulted in municipals outperforming comparable U.S. Treasury bonds along most of the interest rate curve (“the yield curve”). The issuance and demand for new municipal securities was strong.

 

Six-Month Period in Review through March 31, 2012

For the six-month period ended March 31, 2012:

 

 

PIMCO Municipal Income Fund III rose 11.72% on net asset value (“NAV”) and 14.07% on market price.

 

 

PIMCO California Municipal Income Fund III increased 12.06% on NAV and 13.30% on market price.

 

 

PIMCO New York Municipal Income Fund III advanced 8.04% on NAV and 10.49% on market price.

In contrast, the Barclays Capital Municipal Bond Index increased a tax-advantaged 3.91% during the reporting period. The broad taxable bond market, represented by the Barclays Capital U.S. Aggregate Bond Index, rose 1.43%.

 

As the fiscal period began, U.S. 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, was growing at a 1.8% annual rate. This increased to 3.0% between October and December 2011. Although GDP data for January to March 2012 has yet to be released, Federal Reserve Chairman Ben Bernanke has indicated that the U.S. economy continued to expand during the period. This improvement was reflected by, among other things, growing consumer confidence, a surge in auto sales and a steady drop in the unemployment rate, which fell to 8.2% from 9.0% during the six-month reporting period.

 

Underlying concerns regarding the fiscal health of municipal issuers abated somewhat as state tax revenues increased. In the aggregate, however, state coffers remain 7% below pre-recession levels, according to the Center on Budget and Policy Priorities (the “Center”). In addition, for fiscal 2013 (beginning July 1, 2012), states are facing, or in some cases have already closed, budget gaps of approximately $49 billion, according to the Center. This suggests further spending reductions and, in certain instances, tax increases at the state and local level. Unlike the federal government, states, with the exception of Vermont, are required to balance their budgets.

 

2   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


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The Road Ahead

Front and center in the upcoming presidential election year is the debate over federal taxes and spending. Tax reductions signed into law by President Bush and extended by President Obama are due to expire on December 31, 2012. The 2% payroll tax cut is set to expire on that date, as well as a variety of other “revenue enhancements” such as limitations on certain personal and business deductions are being discussed. It is not possible to predict what changes, if any, will be implemented in the wake of the November election. It is not unreasonable to believe that fiscal pressures at the federal, state and local level will be with us for years to come. This is likely to bode well for municipal bond investors due to their tax advantages.

 

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, www.allianzinvestors.com/closedendfunds.

 

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

 

We remain dedicated to serving your investment needs.

 

Sincerely,

 

LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & Chief Executive Officer

 

Receive this report electronically and eliminate paper mailings. To enroll, go to www.allianzinvestors.com/ edelivery.

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     3   


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PIMCO Municipal Income Funds III Fund Insights

March 31, 2012 (unaudited)

 

For the six months ended March 31, 2012, PIMCO Municipal Income Fund III returned 11.72% on net asset value (“NAV”) and 14.07% on market price.

 

For the six months ended March 31, 2012, PIMCO California Municipal Income Fund III returned 12.06% on NAV and 13.30% on market price.

 

For the six months ended March 31, 2012, PIMCO New York Municipal Income Fund III returned 8.04% on NAV and 10.49% on market price.

 

The municipal bond market generated solid results during the six-month reporting period ended March 31, 2012. The overall municipal market, as measured by the Barclays Capital Municipal Bond Index (the “Index”), posted positive returns during the first five months of the period. This was driven by strengthening municipal fundamentals, including higher tax revenues, as well as relatively modest new issuance. In addition, investor demand was generally strong as investors sought higher incremental yield in the low interest rate environment. The municipal market experienced a slight setback in March, as issuers were incentivized to come to market at historic low yields, adding upward pressure to municipal yields. All told, during the six-month period the Index returned 3.91%.

 

During the reporting period, a shorter duration than that of the benchmark detracted from all three Funds’ performance, as municipal yields declined during the six-month period. A steepening yield curve bias was also negative for results, as the municipal curve flattened during the reporting period.

 

PIMCO Municipal Income Fund III and PIMCO California Municipal Income Fund III had overweight exposures to the tobacco and healthcare sectors. This was beneficial for results as these sectors outperformed the benchmark. PIMCO New York Municipal Income Fund III was also rewarded for having an overweighting to healthcare, as well as benefiting from an overweight position to the strong performing corporate-backed sector.

 

The Funds benefited from having a preference for revenue bonds versus general obligation bonds. This contributed to results as revenue bonds outperformed their general obligation bond counterparts during the reporting period.

 

PIMCO Municipal Income Fund III’s overweighting to water and sewer detracted from results, as this sector underperformed the benchmark. PIMCO California Municipal Income Fund III and PIMCO New York Municipal Income Fund III had overweight positions to the electric utility sector. This adversely affected performance as this sector underperformed compared with the benchmark.

 

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PIMCO Municipal Income Funds III Performance & Statistics

March 31, 2012 (unaudited)

 

Municipal Income III:

Total Return(1):   Market Price      NAV  

Six Month

    14.07%         11.72%   

1 Year

    20.81%         30.03%   

5 Year

    1.44%         0.62%   

Commencement of Operations (10/31/02) to 3/31/12

    4.65%         3.95%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/12

 

LOGO

Market Price/NAV:       

Market Price

    $11.80   

NAV

    $10.38   

Premium to NAV

    13.68%   

Market Price Yield(2)

    7.12%   

Leverage Ratio(3)

    39.69%   

 

Moody’s Rating

(as a % of total investments)

 

 

LOGO

 

 

California Municipal Income III:

Total Return(1):   Market Price      NAV  

Six Month

    13.30%         12.06%   

1 Year

    24.56%         32.49%   

5 Year

    2.61%         1.10%   

Commencement of Operations (10/31/02) to 3/31/12

    3.05%         2.97%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/12

 

LOGO

Market Price/NAV:       

Market Price

    $10.40   

NAV

    $9.79   

Premium to NAV

    6.23%   

Market Price Yield(2)

    6.92%   

Leverage Ratio(3)

    43.50%   

 

Moody’s Rating

(as a % of total investments)

 

 

LOGO

 

 

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PIMCO Municipal Income Funds III Performance & Statistics

March 31, 2012 (unaudited)

 

New York Municipal Income III:

Total Return(1):   Market Price      NAV  

Six Month

    10.49%         8.04%   

1 Year

    19.65%         22.55%   

5 Year

    3.70%         3.49%   

Commencement of Operations (10/31/02) to 3/31/12

    1.66%         1.64%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/12

 

LOGO

Market Price/NAV:        

Market Price

    $9.61   

NAV

    $9.20   

Premium to NAV

    4.46%   

Market Price Yield(2)

    6.56%   

Leverage Ratio(3)

    44.17%   

 

Moody’s Rating

(as a % of total investments)

 

 

LOGO

 

 

(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all income dividends and capital gain distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. Total return for a period of more than one year represents the average annual total return.

Performance at market price will differ from results at NAV. Although market price returns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Funds, market conditions, supply and demand for the Funds’ shares, or changes in the Funds’ 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 March 31, 2012.

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

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

MUNICIPAL BONDS & NOTES – 97.1%

 
  Alabama – 2.1%  
$ 9,000     

Birmingham-Baptist Medical Centers Special Care Facs. Financing Auth. Rev.,
Baptist Health Systems, Inc., 5.00%, 11/15/30, Ser. A

  $ 8,723,880   
  500     

Birmingham Special Care Facs. Financing Auth. Rev.,
Childrens Hospital, 6.00%, 6/1/39 (AGC)

    568,345   
  1,500     

Colbert Cnty. Northwest Health Care Auth. Rev., 5.75%, 6/1/27

    1,362,825   
  1,000     

State Docks Department Rev., 6.00%, 10/1/40

    1,092,350   
   

 

 

 
      11,747,400   
   

 

 

 
  Arizona – 6.4%  
 

Health Facs. Auth. Rev.,
Banner Health,

 
  1,250     

5.00%, 1/1/35, Ser. A

    1,302,413   
  900     

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

    968,112   
  2,250     

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

    1,723,702   
 

Pima Cnty. Industrial Dev. Auth. Rev.,

 
  13,000     

5.00%, 9/1/39 (f)

    13,292,760   
  750     

Tuscon Electric Power Co., 5.25%, 10/1/40, Ser. A

    775,950   
  5,000     

Salt River Project Agricultural Improvement & Power Dist. Rev., 5.00%, 1/1/39, Ser. A (f)

    5,443,550   
  11,600     

Salt Verde Financial Corp. Rev., 5.00%, 12/1/37

    11,434,236   
   

 

 

 
      34,940,723   
   

 

 

 
  California – 14.1%  
 

Bay Area Toll Auth. Rev., San Francisco Bay Area,

 
  1,500     

5.00%, 10/1/29

    1,643,280   
  500     

5.00%, 4/1/34, Ser. F-1

    542,755   
  3,260     

5.00%, 10/1/42

    3,483,082   
 

Golden State Tobacco Securitization Corp. Rev., Ser. A-1,

 
  2,000     

5.00%, 6/1/33

    1,518,440   
  4,600     

5.125%, 6/1/47

    3,177,358   
  7,120     

5.75%, 6/1/47

    5,456,341   
 

Health Facs. Financing Auth. Rev.,

 
  2,500     

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

    2,848,575   
 

Sutter Health,

 
  600     

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

    618,138   
  1,500     

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

    1,736,805   
  3,350     

Indian Wells Redev. Agcy., Tax Allocation,
Whitewater Project, 4.75%, 9/1/34, Ser. A (AMBAC)

    3,097,477   
  130     

Los Angeles Unified School Dist., GO, 5.00%, 7/1/30, Ser. E (AMBAC)

    138,882   
  2,000     

M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B

    2,488,160   
  1,660     

Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B

    1,860,843   
  1,250     

Palomar Pomerado Health, CP, 6.75%, 11/1/39

    1,348,875   
  1,600     

San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A

    1,716,992   

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  California (continued)  
 

State, GO,

 
$ 5,000     

5.00%, 6/1/37

  $ 5,225,950   
  5,300     

5.00%, 12/1/37

    5,532,988   
  1,350     

5.25%, 3/1/38

    1,428,502   
  1,300     

5.25%, 11/1/40

    1,402,258   
  3,200     

5.50%, 3/1/40

    3,504,384   
  2,500     

5.75%, 4/1/31

    2,836,225   
  5,000     

6.00%, 4/1/38

    5,696,150   
 

Statewide Communities Dev. Auth. Rev.,

 
  1,000     

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

    1,039,940   
  2,205     

California Baptist Univ., 5.75%, 11/1/17, Ser. B (a)(c)

    2,281,249   
 

Methodist Hospital Project (FHA),

 
  2,900     

6.625%, 8/1/29

    3,593,013   
  10,300     

6.75%, 2/1/38

    12,445,799   
  1,200     

Tobacco Securitization Auth. of Southern California Rev., 5.00%, 6/1/37, Ser. A-1

    907,440   
   

 

 

 
      77,569,901   
   

 

 

 
  Colorado – 1.2%  
  500     

Confluence Metropolitan Dist. Rev., 5.45%, 12/1/34

    379,345   
 

Health Facs. Auth. Rev.,

 
  500     

Evangelical Lutheran, 6.125%, 6/1/38, Ser. A

    514,425   
  4,300     

Sisters of Charity of Leavenworth Health System, 5.00%, 1/1/40

    4,513,495   
  500     

Public Auth. for Colorado Energy Rev., 6.50%, 11/15/38

    626,940   
  500     

Regional Transportation Dist. Rev., Denver Transportation Partners, 6.00%, 1/15/34

    542,335   
   

 

 

 
      6,576,540   
   

 

 

 
  Connecticut – 0.3%  
  1,250     

Harbor Point Infrastructure Improvement Dist., Tax Allocation, 7.875%, 4/1/39, Ser. A

    1,393,712   
   

 

 

 
  District of Columbia – 2.1%  
  10,000     

Water & Sewer Auth. Rev., 5.50%, 10/1/39, Ser. A (f)

    11,251,200   
   

 

 

 
  Florida – 4.1%  
  3,480     

Brevard Cnty. Health Facs. Auth. Rev., Health First, Inc. Project, 5.00%, 4/1/34

    3,542,919   
  500     

Broward Cnty. Airport System Rev., 5.375%, 10/1/29, Ser. O

    555,050   
  4,500     

Broward Cnty. Water & Sewer Utility Rev., 5.25%, 10/1/34, Ser. A (f)

    4,942,800   
  3,000     

Cape Coral Water & Sewer Rev., 5.00%, 10/1/41 (AGM)

    3,195,960   
  350     

Dev. Finance Corp. Rev., Renaissance Charter School, 6.50%, 6/15/21, Ser. A

    366,982   
  2,500     

Hillsborough Cnty. Industrial Dev. Auth. Rev.,
Tampa General Hospital Project, 5.25%, 10/1/34, Ser. B

    2,564,500   
  3,895     

Sarasota Cnty. Health Facs. Auth. Rev.,
Sarasota-Manatee Jewish Housing Council, Inc. Project, 5.75%, 7/1/45

    2,786,171   
  4,200     

State Board of Education, GO, 5.00%, 6/1/38, Ser. D (f)

    4,577,580   
   

 

 

 
      22,531,962   
   

 

 

 

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Georgia – 0.3%  
$ 1,750     

Fulton Cnty. Residential Care Facs. for the Elderly Auth. Rev.,
Lenbrook Project, 5.125%, 7/1/42, Ser. A

  $ 1,334,270   
  400     

Medical Center Hospital Auth. Rev., Spring Harbor Green Island Project, 5.25%, 7/1/37

    351,792   
   

 

 

 
      1,686,062   
   

 

 

 
  Hawaii – 0.3%  
  1,500     

Hawaii Pacific Health Rev., 5.50%, 7/1/40, Ser. A

    1,575,870   
   

 

 

 
  Illinois – 5.7%  
  5,000     

Chicago, GO, 5.00%, 1/1/34, Ser. C (f)

    5,304,750   
 

Finance Auth. Rev.,

 
 

Leafs Hockey Club Project, Ser. A (g),

 
  1,000     

5.875%, 3/1/27

    330,390   
  625     

6.00%, 3/1/37

    206,225   
  400     

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

    473,444   
  12,795     

Peoples Gas Light & Coke Co., 5.00%, 2/1/33 (AMBAC)

    12,902,350   
  1,000     

Swedish Covenant Hospital, 6.00%, 8/15/38, Ser. A

    1,097,670   
 

Univ. of Chicago,

 
  165     

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

    165,464   
  5,000     

5.50%, 7/1/37, Ser. B (f)

    5,618,650   
  5,000     

State Toll Highway Auth. Rev., 5.50%, 1/1/33, Ser. B

    5,410,350   
   

 

 

 
      31,509,293   
   

 

 

 
  Indiana – 1.1%  
  500     

Dev. Finance Auth. Rev., 5.00%, 3/1/30, Ser. B (AMBAC)

    500,175   
 

Portage, Tax Allocation, Ameriplex Project,

 
  1,000     

5.00%, 7/15/23

    1,009,120   
  775     

5.00%, 1/15/27

    770,141   
  2,800     

Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 7.50%, 9/1/22

    3,506,916   
   

 

 

 
      5,786,352   
   

 

 

 
  Iowa – 0.1%  
 

Finance Auth. Rev., Deerfield Retirement Community, Inc., Ser. A,

 
  120     

5.50%, 11/15/27

    95,226   
  575     

5.50%, 11/15/37

    418,381   
   

 

 

 
      513,607   
   

 

 

 
  Kentucky – 0.8%  
 

Economic Dev. Finance Auth. Rev.,

 
  1,000     

Catholic Healthcare Partners, 5.25%, 10/1/30

    1,008,840   
  2,000     

Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A

    2,257,920   
  1,250     

Ohio Cnty. Pollution Control Rev.,

 
 

Big Rivers Electric Corp. Project, 6.00%, 7/15/31, Ser. A

    1,331,175   
   

 

 

 
      4,597,935   
   

 

 

 

 

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Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Louisiana – 1.5%  
 

Local Gov’t Environmental Facs. & Community Dev. Auth. Rev.,

 
$ 400     

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

  $ 446,428   
 

Woman’s Hospital Foundation, Ser. A,

 
  1,500     

5.875%, 10/1/40

    1,626,600   
  1,000     

6.00%, 10/1/44

    1,089,430   
 

Public Facs. Auth. Rev., Ochsner Clinic Foundation Project,

 
  1,700     

5.50%, 5/15/47, Ser. B

    1,729,410   
  2,000     

6.50%, 5/15/37

    2,228,160   
  1,345     

Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B

    1,352,949   
   

 

 

 
      8,472,977   
   

 

 

 
  Maryland – 0.8%  
  1,000     

Economic Dev. Corp. Rev., 5.75%, 6/1/35, Ser. B

    1,057,210   
 

Health & Higher Educational Facs. Auth. Rev.,

 
  1,500     

Calvert Health System, 5.50%, 7/1/36

    1,557,150   
  700     

Charlestown Community, 6.25%, 1/1/41

    767,522   
  1,000     

Lifebridge Health, 6.00%, 7/1/41

    1,124,390   
   

 

 

 
      4,506,272   
   

 

 

 
  Massachusetts – 1.4%  
 

Dev. Finance Agcy. Rev.,

 
  300     

Adventcare Project, 7.625%, 10/15/37

    320,007   
 

Linden Ponds, Inc. Fac.,

 
  141     

zero coupon, 11/15/56, Ser. B

    1,571   
  28     

5.50%, 11/15/46, Ser. A-2

    18,822   
  529     

6.25%, 11/15/39, Ser. A-1

    405,128   
  4,910     

Housing Finance Agcy. Rev., 5.125%, 6/1/43, Ser. H

    4,930,328   
  1,600     

State College Building Auth. Rev., 5.50%, 5/1/39, Ser. A

    1,779,888   
   

 

 

 
      7,455,744   
   

 

 

 
  Michigan – 11.7%  
  1,500     

Detroit, GO, 5.25%, 11/1/35

    1,566,225   
  9,320     

Detroit Sewage Disposal System Rev., 5.00%, 7/1/32, Ser. A (AGM)

    9,396,331   
 

Detroit Water Supply System Rev.,

 
  16,000     

5.00%, 7/1/34, Ser. A (NPFGC)

    16,132,960   
  7,555     

5.00%, 7/1/34, Ser. B (NPFGC)

    7,559,835   
  5,000     

5.25%, 7/1/41, Ser. A

    5,154,650   
  500     

Global Preparatory Academy Rev., 5.25%, 11/1/36

    371,855   
  1,300     

Michigan State Univ. Rev., 6.173%, 2/15/50, Ser. A

    1,526,707   
  1,500     

Royal Oak Hospital Finance Auth. Rev., William Beaumont Hospital, 8.25%, 9/1/39

    1,909,725   
 

State Hospital Finance Auth. Rev.,

 
  575     

Oakwood Group, 6.00%, 4/1/22, Ser. A

    602,065   

 

10   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Michigan (continued)  
 

Trinity Health,

 
$ 18,310     

5.375%, 12/1/30

  $ 18,617,059   
  1,690     

5.375%, 12/1/30 (Pre-refunded @ $100, 12/1/12) (b)

    1,747,849   
   

 

 

 
      64,585,261   
   

 

 

 
  Minnesota – 0.0%  
  125     

Duluth Housing & Redev. Auth. Rev., 5.875%, 11/1/40, Ser. A

    122,369   
   

 

 

 
  Mississippi – 0.2%  
  1,250     

Business Finance Corp. Rev., System Energy Res., Inc. Project, 5.90%, 5/1/22

    1,251,425   
   

 

 

 
  Missouri – 0.1%  
  250     

Jennings Rev., Northland Redev. Area Project, 5.00%, 11/1/23

    234,540   
  500     

Manchester, Tax Allocation, Highway 141/Manchester Road Project, 6.875%, 11/1/39

    525,670   
   

 

 

 
      760,210   
   

 

 

 
  New Hampshire – 0.4%  
  2,000     

Business Finance Auth. Rev., Elliot Hospital, 6.125%, 10/1/39, Ser. A

    2,104,700   
   

 

 

 
  New Jersey – 6.7%  
  1,000     

Camden Cnty. Improvement Auth. Rev., Cooper Health Systems Group, 5.00%, 2/15/35, Ser. A

    977,290   
  300     

Economic Dev. Auth. Rev., Newark Airport Marriott Hotel, 7.00%, 10/1/14

    300,828   
  4,500     

Economic Dev. Auth., Special Assessment, Kapkowski Road Landfill Project, 6.50%, 4/1/28

    5,172,480   
  1,000     

Health Care Facs. Financing Auth. Rev., St. Peters Univ. Hospital, 5.75%, 7/1/37

    1,031,050   
 

Tobacco Settlement Financing Corp. Rev., Ser. 1-A,

 
  1,600     

4.75%, 6/1/34

    1,209,248   
  25,745     

5.00%, 6/1/41

    19,504,669   
  8,000     

Transportation Trust Fund Auth. Rev., 5.00%, 6/15/42, Ser. B

    8,597,360   
   

 

 

 
      36,792,925   
   

 

 

 
  New Mexico – 0.2%  
  1,000     

Farmington Pollution Control Rev., 5.90%, 6/1/40, Ser. D

    1,074,160   
   

 

 

 
  New York – 11.6%  
  9,800     

Brooklyn Arena Local Dev. Corp. Rev., Barclays Center Project, 6.25%, 7/15/40

    10,819,788   
  5,000     

Hudson Yards Infrastructure Corp. Rev., 5.75%, 2/15/47, Ser. A

    5,591,900   
 

Liberty Dev. Corp. Rev.,

 
  10,000     

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

    10,821,800   
  8,555     

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

    9,042,806   
  1,700     

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

    1,908,998   
  3,000     

Metropolitan Transportation Auth. Rev., 5.00%, 11/15/36, Ser. D

    3,239,850   
  1,150     

Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A

    929,292   
  10,450     

New York City Industrial Dev. Agcy. Rev., Yankee Stadium, 7.00%, 3/1/49 (AGC)

    12,059,613   
 

New York City Municipal Water Finance Auth. Water & Sewer Rev. (f),

 
  4,900     

5.00%, 6/15/37, Ser. D

    5,313,315   
  4,000     

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

    4,226,720   
   

 

 

 
      63,954,082   
   

 

 

 

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     11   


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  North Carolina – 1.4%  
$ 1,500     

Medical Care Commission Rev., Cleveland Cnty. Healthcare, 5.00%, 7/1/35, Ser. A (AMBAC)

  $ 1,517,955   
  6,000     

New Hanover Cnty. Rev., New Hanover Regional Medical Center, 5.00%, 10/1/28

    6,377,400   
   

 

 

 
      7,895,355   
   

 

 

 
  Ohio – 4.3%  
  500     

Allen Cnty. Catholic Healthcare Rev., Allen Hospital, 5.00%, 6/1/38, Ser. A

    521,045   
 

Buckeye Tobacco Settlement Financing Auth. Rev., Ser. A-2,

 
  2,400     

5.875%, 6/1/30

    1,851,216   
  10,600     

5.875%, 6/1/47

    7,951,908   
  7,290     

6.00%, 6/1/42

    5,611,040   
  5,000     

6.50%, 6/1/47

    4,106,450   
  500     

Higher Educational Fac. Commission Rev.,
Univ. Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A

    542,665   
  2,500     

Lorain Cnty. Hospital Rev., Catholic Healthcare, 5.375%, 10/1/30

    2,523,250   
  500     

Montgomery Cnty. Rev., Miami Valley Hospital, 6.25%, 11/15/39, Ser. A

    535,590   
   

 

 

 
      23,643,164   
   

 

 

 
  Pennsylvania – 2.6%  
  1,000     

Allegheny Cnty. Hospital Dev. Auth. Rev., Univ. of Pittsburgh Medical Center, 5.625%, 8/15/39

    1,096,030   
 

Cumberland Cnty. Municipal Auth. Rev., Messiah Village Project, Ser. A,

 
  750     

5.625%, 7/1/28

    765,937   
  670     

6.00%, 7/1/35

    688,499   
  1,000     

Dauphin Cnty. General Auth. Rev., Pinnacle Health System Project, 6.00%, 6/1/36, Ser. A

    1,101,140   
  1,250     

Harrisburg Auth. Rev., Harrisburg Univ. of Science, 6.00%, 9/1/36, Ser. B

    1,026,975   
  100     

Luzerne Cnty. Industrial Dev. Auth. Rev., Pennsylvania American Water Co., 5.50%, 12/1/39

    108,432   
  5,885     

Philadelphia Hospitals & Higher Education Facs. Auth. Rev.,
Temple Univ. Hospital, 6.625%, 11/15/23, Ser. A

    5,894,534   
  500     

Philadelphia Water & Sewer Rev., 5.25%, 1/1/36, Ser. A

    531,115   
  3,000     

Turnpike Commission Rev., 5.125%, 12/1/40, Ser. D

    3,147,900   
   

 

 

 
      14,360,562   
   

 

 

 
  Puerto Rico – 1.0%  
 

Sales Tax Financing Corp. Rev.,

 
  2,400     

5.00%, 8/1/40, Ser. A (AGM) (f)

    2,483,064   
  3,000     

5.375%, 8/1/38, Ser. C

    3,225,660   
   

 

 

 
      5,708,724   
   

 

 

 
  South Carolina – 1.3%  
  1,000     

Greenwood Cnty. Rev., Self Regional Healthcare, 5.375%, 10/1/39

    1,057,730   
  5,305     

Jobs-Economic Dev. Auth. Rev., Bon Secours Health System, 5.625%, 11/15/30, Ser. B

    5,425,901   
  800     

State Ports Auth. Rev., 5.25%, 7/1/40

    864,904   
   

 

 

 
      7,348,535   
   

 

 

 

 

12   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Tennessee – 0.5%  
$ 1,250     

Claiborne Cnty. Industrial Dev. Board Rev., Lincoln Memorial Univ. Project, 6.625%, 10/1/39

  $ 1,368,275   
  1,000     

Johnson City Health & Educational Facs. Board Rev.,
Mountain States Health Alliance, 6.00%, 7/1/38, Ser. A

    1,110,980   
   

 

 

 
      2,479,255   
   

 

 

 
  Texas – 8.0%  
  1,300     

Dallas Rev., Dallas Civic Center, 5.25%, 8/15/38 (AGC)

    1,404,429   
 

North Harris Cnty. Regional Water Auth. Rev.,

 
  5,500     

5.25%, 12/15/33

    5,950,450   
  5,500     

5.50%, 12/15/38

    5,986,915   
 

North Texas Tollway Auth. Rev.,

 
  3,000     

5.00%, 1/1/38

    3,169,410   
  600     

5.50%, 9/1/41, Ser. A

    681,558   
  10,800     

5.625%, 1/1/33, Ser. A

    11,697,372   
  700     

5.75%, 1/1/33, Ser. F

    755,167   
  2,000     

Sabine River Auth. Pollution Control Rev., TXU Energy, 5.20%, 5/1/28, Ser. C

    222,300   
  3,000     

Tarrant Cnty. Cultural Education Facs. Finance Corp. Rev.,
Baylor Health Care Systems Project, 6.25%, 11/15/29

    3,567,000   
 

Texas Municipal Gas Acquisition & Supply Corp. I Rev.,

 
  150     

5.25%, 12/15/26, Ser. A

    162,327   
  8,100     

6.25%, 12/15/26, Ser. D

    9,659,898   
  500     

Wise Cnty. Rev., Parker Cnty. Junior College Dist., 8.00%, 8/15/34

    547,890   
   

 

 

 
      43,804,716   
   

 

 

 
  Virginia – 0.3%  
  1,000     

Fairfax Cnty. Industrial Dev. Auth. Rev., Inova Health Systems, 5.50%, 5/15/35, Ser. A

    1,115,610   
  1,000     

James City Cnty. Economic Dev. Auth. Rev., United Methodist Homes, 5.50%, 7/1/37, Ser. A

    753,030   
   

 

 

 
      1,868,640   
   

 

 

 
  Washington – 3.9%  
 

Health Care Facs. Auth. Rev.,

 
  500     

Kadlec Regional Medical Center, 5.50%, 12/1/39

    513,120   
  1,000     

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

    1,189,290   
  19,000     

Tobacco Settlement Auth. Rev., 6.50%, 6/1/26

    19,786,030   
   

 

 

 
      21,488,440   
   

 

 

 
  West Virginia – 0.2%  
  1,000     

Hospital Finance Auth. Rev., Highland Hospital, 9.125%, 10/1/41

    1,128,250   
   

 

 

 
  Wisconsin – 0.4%  
 

Health & Educational Facs. Auth. Rev.,

 
  1,000     

Aurora Health Care, Inc., 5.625%, 4/15/39, Ser. A

    1,070,240   
  1,000     

Prohealth Care, Inc., 6.625%, 2/15/39

    1,156,140   
   

 

 

 
      2,226,380   
   

 

 

 
 

Total Municipal Bonds & Notes (cost-$499,901,662)

    534,712,703   
   

 

 

 

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     13   


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  

 

VARIABLE RATE NOTES (a)(c)(d)(e) – 2.9%

 
  California – 0.4%  
$ 1,675     

Los Angeles Community College Dist., GO, 11.36%, 8/1/33, Ser. 3096

  $ 2,192,173   
   

 

 

 
  Florida – 1.0%  
  5,000     

Greater Orlando Aviation Auth. Rev., 7.84%, 10/1/39, Ser. 3174

    5,551,250   
   

 

 

 
  Texas – 1.5%  
  6,500     

JPMorgan Chase Putters/Drivers Trust, GO, 7.937%, 2/1/17, Ser. 3480

    8,014,825   
   

 

 

 
 

Total Variable Rate Notes (cost-$13,076,333)

    15,758,248   
   

 

 

 
  Total Investments (cost-$512,977,995) – 100.0%   $ 550,470,951   
   

 

 

 

 

14   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

CALIFORNIA MUNICIPAL BONDS & NOTES – 96.1%

 
$ 1,250     

Bay Area Toll Auth. Rev., San Francisco Bay Area, 5.00%, 4/1/34, Ser. F-1

  $ 1,356,888   
  1,000     

Cathedral City Public Financing Auth., Tax Allocation, 5.00%, 8/1/33, Ser. A (NPFGC)

    944,790   
  1,150     

Ceres Redev. Agcy., Tax Allocation, Project Area No. 1, 5.00%, 11/1/33 (NPFGC)

    1,123,251   
  2,000     

Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B

    2,298,360   
  550     

City & Cnty. of San Francisco, Capital Improvement Projects, CP, 5.25%, 4/1/31, Ser. A

    578,210   
  1,415     

Contra Costa Cnty. Public Financing Auth., Tax Allocation, 5.625%, 8/1/33, Ser. A

    1,348,226   
  3,775     

Cucamonga School Dist., CP, 5.20%, 6/1/27

    3,857,106   
 

Educational Facs. Auth. Rev. (f),

 
  9,800     

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

    10,409,168   
  10,000     

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

    10,986,100   
  1,695     

El Dorado Irrigation Dist. & El Dorado Cnty. Water Agcy., CP, 5.75%, 8/1/39, Ser. A (AGC)

    1,754,410   
 

Golden State Tobacco Securitization Corp. Rev.,

 
  2,750     

5.00%, 6/1/33, Ser. A-1

    2,087,855   
  11,000     

5.00%, 6/1/45 (AMBAC-TCRS)

    11,085,470   
  4,000     

5.00%, 6/1/45, Ser. A (FGIC-TCRS)

    4,031,080   
  13,865     

5.75%, 6/1/47, Ser. A-1

    10,625,304   
 

Health Facs. Financing Auth. Rev.,

 
 

Adventist Health System, Ser. A,

 
  500     

5.00%, 3/1/33

    504,355   
  4,000     

5.75%, 9/1/39

    4,377,720   
 

Catholic Healthcare West, Ser. A,

 
  1,935     

6.00%, 7/1/34

    2,150,269   
  4,000     

6.00%, 7/1/39

    4,557,720   
  450     

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

    460,233   
  500     

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

    578,150   
  6,000     

Cottage Health System, 5.00%, 11/1/33, Ser. B (NPFGC)

    6,034,020   
  1,300     

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

    1,396,018   
  2,900     

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

    3,191,711   
 

Sutter Health,

 
  1,000     

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

    1,058,980   
  5,000     

5.00%, 8/15/38, Ser. A

    5,226,800   
  500     

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

    515,115   
  1,200     

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

    1,389,444   
  500     

Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39

    551,070   
  150     

Lancaster Redev. Agcy. Rev., Capital Improvements Projects, 5.90%, 12/1/35

    148,102   
  5,600     

Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, 5.50%, 11/15/37, Ser. A

    6,236,048   
  5,000     

Long Beach Unified School Dist., GO, 5.75%, 8/1/33, Ser. A

    5,707,250   
 

Los Angeles Department of Water & Power Rev. (f),

 
  6,000     

4.75%, 7/1/30, Ser. A-2 (AGM)

    6,321,780   
  10,000     

5.00%, 7/1/39, Ser. A

    10,707,200   

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     15   


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
 

Los Angeles Unified School Dist., GO,

 
$ 9,580     

4.75%, 1/1/28, Ser. A (NPFGC)

  $ 9,803,693   
  10,000     

5.00%, 1/1/34, Ser. I (f)

    10,871,700   
  550     

Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A

    579,650   
  1,000     

Manteca Financing Auth. Sewer Rev., 5.75%, 12/1/36

    1,097,800   
  5,000     

Metropolitan Water Dist. of Southern California Rev., 5.00%, 7/1/37, Ser. A (f)

    5,390,850   
  2,980     

Modesto Irrigation Dist., Capital Improvement Projects, CP, 5.00%, 7/1/33, Ser. A (NPFGC)

    2,997,224   
  3,000     

Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)

    3,197,100   
  1,700     

M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B

    2,114,936   
  1,000     

Municipal Finance Auth. Rev., Azusa Pacific Univ. Project, 7.75%, 4/1/31, Ser. B

    1,120,990   
  5,000     

Oakland, GO, 5.00%, 1/15/33, Ser. A (NPFGC) (Pre-refunded @ $100, 1/15/13) (b)

    5,186,700   
  3,900     

Orange Unified School Dist., CP, 4.75%, 6/1/29 (NPFGC)

    4,034,901   
  1,250     

Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C

    1,283,062   
  1,250     

Pollution Control Financing Auth. Rev.,
American Water Capital Corp. Project, 5.25%, 8/1/40 (a)(c)

    1,257,188   
  1,950     

Poway Unified School Dist., Special Tax, 5.125%, 9/1/28

    1,967,180   
  5,000     

Riverside, CP, 5.00%, 9/1/33 (AMBAC)

    4,967,300   
  500     

Rocklin Unified School Dist. Community Facs. Dist., Special Tax, 5.00%, 9/1/29 (NPFGC)

    501,190   
  3,250     

Sacramento Municipal Utility Dist. Rev., 5.00%, 8/15/33, Ser. R (NPFGC)

    3,392,123   
  6,250     

San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. 2008-A (AGM)

    6,611,563   
  12,075     

San Diego Community College Dist., GO,
5.00%, 5/1/28, Ser. A (AGM) (Pre-refunded @ $100, 5/1/13) (b)

    12,695,776   
  4,000     

San Diego Public Facs. Financing Auth. Sewer Rev., 5.25%, 5/15/39, Ser. A

    4,410,800   
  2,200     

San Diego Regional Building Auth. Rev.,
Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A

    2,406,470   
  1,500     

San Diego State Univ. Foundation Rev., 5.00%, 3/1/27, Ser. A (NPFGC)

    1,500,825   
  1,500     

San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36

    1,652,115   
  12,200     

San Marcos Public Facs. Auth., Tax Allocation, 5.00%, 8/1/33, Ser. A (FGIC-NPFGC)

    12,367,872   
  1,000     

San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A

    1,073,120   
  500     

Santa Clara Cnty. Financing Auth. Rev., El Camino Hospital, 5.75%, 2/1/41, Ser. A (AMBAC)

    538,335   
  1,200     

Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community,
7.00%, 9/1/36, Ser. A

    1,411,956   
  4,425     

South Tahoe JT Powers Financing Auth. Rev.,
South Tahoe Redev. Project, 5.45%, 10/1/33, Ser. 1-A

    4,294,241   
  7,300     

State, GO, 6.00%, 4/1/38

    8,316,379   
 

State Public Works Board Rev.,

 
  2,000     

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

    2,209,600   
  2,050     

Univ. CA M.I.N.D. Inst., 5.00%, 4/1/28, Ser. A

    2,106,396   
  500     

Statewide Communities Dev. Auth. Rev.,
American Baptist Homes West, 6.25%, 10/1/39

    519,970   

 

16   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
 

California Baptist Univ.,

 
$ 1,300     

5.50%, 11/1/38, Ser. A

  $ 1,257,659   
  500     

6.50%, 11/1/21

    565,435   
 

Catholic Healthcare West,

 
  1,015     

5.50%, 7/1/31, Ser. D

    1,104,797   
  1,015     

5.50%, 7/1/31, Ser. E

    1,104,797   
  4,500     

Kaiser Permanente, 5.00%, 3/1/41, Ser. B

    4,633,245   
  1,000     

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

    1,091,000   
  7,300     

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

    7,398,404   
  15,000     

Memorial Health Services, 5.50%, 10/1/33, Ser. A

    15,611,100   
 

Methodist Hospital Project (FHA),

 
  2,000     

6.625%, 8/1/29

    2,477,940   
  7,200     

6.75%, 2/1/38

    8,699,976   
  3,100     

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

    3,370,072   
 

Sutter Health,

 
  10,000     

5.50%, 8/15/34, Ser. B (f)

    10,178,500   
  1,800     

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

    2,084,166   
  11,000     

Trinity Health, 5.00%, 12/1/41

    11,809,710   
  2,000     

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

    2,083,980   
  3,505     

Statewide Communities Dev. Auth., The Internext Group, CP, 5.375%, 4/1/30

    3,505,280   
 

Tobacco Securitization Agcy. Rev.,

 
 

Alameda Cnty.,

 
  8,100     

5.875%, 6/1/35

    7,188,507   
  7,000     

6.00%, 6/1/42

    6,085,660   
  2,000     

Kern Cnty., 6.125%, 6/1/43, Ser. A

    1,879,880   
  5,000     

Tobacco Securitization Auth. of Southern California Rev., 5.00%, 6/1/37, Ser. A-1

    3,781,000   
  2,950     

Torrance Rev., Torrance Memorial Medical Center, 5.50%, 6/1/31, Ser. A

    2,958,702   
  1,000     

West Basin Municipal Water Dist., CP, 5.00%, 8/1/30, Ser. A (NPFGC)

    1,012,980   
  2,000     

Western Municipal Water Dist. Facs. Auth. Rev., 5.00%, 10/1/39, Ser. B

    2,159,260   
  1,000     

Westlake Village, CP, 5.00%, 6/1/39

    1,040,630   
  2,500     

William S. Hart Union High School Dist., Special Tax, 6.00%, 9/1/33, Ser. 2002-1

    2,520,275   
  2,750     

Woodland Finance Auth. Rev., 5.00%, 3/1/32 (XLCA)

    2,838,275   
   

 

 

 
 

Total California Municipal Bonds & Notes (cost-$324,620,650)

    353,918,438   
   

 

 

 
   

 

OTHER MUNICIPAL BONDS & NOTES – 3.6%

 
  Indiana – 1.3%  
  5,000     

Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 5.75%, 9/1/42 (a)(c)

    4,853,050   
   

 

 

 
  New Jersey – 0.2%  
  1,000     

Tobacco Settlement Financing Corp. Rev., 4.75%, 6/1/34, Ser. 1-A

    755,780   
   

 

 

 

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     17   


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  New York – 1.0%  
$ 3,300     

New York City Municipal Water Finance Auth. Water & Sewer Rev.,
5.00%, 6/15/37, Ser. D (f)

  $ 3,578,355   
   

 

 

 
  Puerto Rico – 1.1%  
 

Sales Tax Financing Corp. Rev.,

 
  1,535     

5.00%, 8/1/46, Ser. C

    1,609,524   
  2,200     

5.25%, 8/1/43, Ser. A-1

    2,352,064   
   

 

 

 
      3,961,588   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$10,446,819)

    13,148,773   
   

 

 

 
   

 

CALIFORNIA VARIABLE RATE NOTES (a)(c)(d)(e) – 0.3%

 
  1,000     

Los Angeles Community College Dist., GO, 11.36%, 8/1/33, Ser. 3096 (cost-$996,659)

    1,308,760   
   

 

 

 
  Total Investments (cost-$336,064,128) – 100.0%   $ 368,375,971   
   

 

 

 

 

18   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

NEW YORK MUNICIPAL BONDS & NOTES – 84.8%

 
$ 1,000     

Brooklyn Arena Local Dev. Corp. Rev., Barclays Center Project, 6.375%, 7/15/43

  $ 1,101,850   
  1,500     

Chautauqua Cnty. Industrial Dev. Agcy. Rev., Dunkirk Power Project, 5.875%, 4/1/42

    1,608,090   
  730     

Dutchess Cnty. Industrial Dev. Agcy. Rev., Elant Fishkill, Inc., 5.25%, 1/1/37, Ser. A

    537,273   
  800     

East Rochester Housing Auth. Rev., St. Mary’s Residence Project,
5.375%, 12/20/22, Ser. A (GNMA)

    849,696   
  4,000     

Hudson Yards Infrastructure Corp. Rev., 5.75%, 2/15/47, Ser. A

    4,473,520   
 

Liberty Dev. Corp. Rev.,

 
  1,050     

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

    1,160,533   
 

Goldman Sachs Headquarters,

 
  1,810     

5.25%, 10/1/35

    1,969,660   
  2,400     

5.50%, 10/1/37

    2,695,056   
  1,500     

Long Island Power Auth. Rev., 5.75%, 4/1/39, Ser. A

    1,691,850   
 

Metropolitan Transportation Auth. Rev.,

 
  5,220     

5.00%, 11/15/32, Ser. A (FGIC-NPFGC)

    5,316,152   
  500     

5.00%, 11/15/34, Ser. B

    545,195   
  3,000     

Monroe Cnty. Industrial Dev. Corp. Rev.,
Unity Hospital Rochester Project, 5.50%, 8/15/40 (FHA) (f)

    3,378,210   
  200     

Mortgage Agcy. Rev., 4.75%, 10/1/27, Ser. 128

    203,438   
  500     

Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A

    404,040   
 

New York City, GO,

 
  250     

5.00%, 3/1/33, Ser. I

    257,355   
  2,445     

5.00%, 3/1/33, Ser. I (Pre-refunded @ $100, 3/1/13) (b)

    2,550,062   
 

New York City Industrial Dev. Agcy. Rev., (AGC),

 
  600     

Queens Baseball Stadium, 6.50%, 1/1/46

    647,352   
  2,200     

Yankee Stadium, 7.00%, 3/1/49

    2,538,866   
 

New York City Municipal Water Finance Auth. Water & Sewer Rev.,
Second Generation Resolutions,

 
  5,000     

4.75%, 6/15/35, Ser. DD (f)

    5,258,000   
  1,500     

5.00%, 6/15/39, Ser. GG-1

    1,610,385   
  3,450     

New York City Trust for Cultural Res. Rev.,
Wildlife Conservation Society, 5.00%, 2/1/34 (FGIC-NPFGC)

    3,577,754   
  4,000     

New York Liberty Dev. Corp. Rev., 4 World Trade Center Project, 5.75%, 11/15/51

    4,482,720   
  1,000     

Niagara Falls Public Water Auth. Water & Sewer Rev., 5.00%, 7/15/34, Ser. A (NPFGC)

    1,008,570   
  400     

Onondaga Cnty. Rev., Syracuse Univ. Project, 5.00%, 12/1/36

    441,888   
  600     

Port Auth. of New York & New Jersey Rev., JFK International Air Terminal, 6.00%, 12/1/36

    673,050   
 

State Dormitory Auth. Rev.,

 
  1,000     

5.00%, 3/15/38, Ser. A

    1,082,800   
  2,250     

Jewish Board Family & Children, 5.00%, 7/1/33 (AMBAC)

    2,257,358   
  3,000     

Lutheran Medical Hospital, 5.00%, 8/1/31 (FHA-NPFGC)

    3,017,880   

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     19   


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
$ 250     

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

  $ 279,027   
  3,740     

St. Barnabas Hospital, 5.00%, 2/1/31, Ser. A (AMBAC-FHA)

    3,779,083   
  1,200     

Teachers College, 5.50%, 3/1/39

    1,295,640   
  500     

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

    544,125   
  620     

Winthrop Univ. Hospital Assoc., 5.50%, 7/1/32, Ser. A

    627,508   
  2,500     

Winthrop-Nassau Univ., 5.75%, 7/1/28

    2,544,400   
  750     

State Environmental Facs. Corp. Rev., 4.75%, 6/15/32, Ser. B

    796,357   
 

State Urban Dev. Corp. Rev.,

 
  2,400     

5.00%, 3/15/35, Ser. B

    2,602,176   
  2,200     

5.00%, 3/15/36, Ser. B-1 (f)

    2,396,240   
  2,000     

Triborough Bridge & Tunnel Auth. Rev., 5.25%, 11/15/34, Ser. A-2 (f)

    2,251,460   
  1,400     

Troy Capital Res. Corp. Rev., Rensselaer Polytechnic Institute, 5.125%, 9/1/40, Ser. A

    1,481,732   
  2,000     

Warren & Washington Cntys. Industrial Dev. Agcy. Rev.,
Glens Falls Hospital Project, 5.00%, 12/1/35, Ser. A (AGM)

    2,012,200   
  600     

Westchester Cnty. Healthcare Corp. Rev., 6.125%, 11/1/37, Ser. C-2

    664,206   
  100     

Yonkers Economic Dev. Corp. Rev.,
Charter School of Educational Excellence Project, 6.00%, 10/15/30, Ser. A

    100,860   
   

 

 

 
 

Total New York Municipal Bonds & Notes (cost-$70,931,436)

    76,713,617   
   

 

 

 
   

 

OTHER MUNICIPAL BONDS & NOTES – 9.5%

 
  District of Columbia – 0.2%  
  175     

Tobacco Settlement Financing Corp. Rev., 6.50%, 5/15/33

    193,424   
   

 

 

 
  Ohio – 1.0%  
  1,250     

Buckeye Tobacco Settlement Financing Auth. Rev., 5.875%, 6/1/47, Ser. A-2

    937,725   
   

 

 

 
  Puerto Rico – 7.0%  
  580     

Children’s Trust Fund Rev., 5.625%, 5/15/43

    575,325   
 

Sales Tax Financing Corp. Rev.,

 
  4,000     

5.00%, 8/1/40, Ser. A (AGM) (f)

    4,138,440   
  500     

5.25%, 8/1/43, Ser. A-1

    534,560   
  1,000     

5.375%, 8/1/38, Ser. C

    1,075,220   
   

 

 

 
      6,323,545   
   

 

 

 
  South Carolina – 0.6%  
  370     

Tobacco Settlement Rev. Management Auth. Rev., 6.375%, 5/15/30, Ser. B

    501,961   
   

 

 

 
  U.S. Virgin Islands – 0.6%  
  500     

Public Finance Auth. Rev., 6.00%, 10/1/39, Ser. A

    540,645   
   

 

 

 
  Washington – 0.1%  
  135     

Tobacco Settlement Auth. Rev., 6.625%, 6/1/32

    140,115   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$7,918,398)

    8,637,415   
   

 

 

 

 

20   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2012 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  

 

NEW YORK VARIABLE RATE NOTES (e) – 5.6%

 
$ 5,000     

State Dormitory Auth. Rev., Rockefeller Univ.,
5.00%, 7/1/32, Ser. A-1 (Pre-refunded @ $100, 7/1/12) (b) (cost-$4,945,889)

  $ 5,059,000   
   

 

 

 
   

 

SHORT-TERM INVESTMENTS – 0.1%

 
  U.S. Treasury Obligations (h) – 0.1%  
  37     

U.S. Treasury Bills, 0.025%, 4/5/12 (cost-$37,000)

    37,000   
   

 

 

 
  Total Investments (cost-$83,832,723) – 100.0%   $ 90,447,032   
   

 

 

 

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     21   


Table of Contents

PIMCO Municipal Income Funds III Notes to Schedules of Investments

March 31, 2012 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $18,039,497 and $7,418,998, representing 3.3% and 2.0% of total investments in Municipal III and California Municipal III, respectively.  
(b)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  
(c)   144A – Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.  
(d)   Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on March 31, 2012.  
(e)   Variable Rate Notes – Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on March 31, 2012.  
(f)   Residual Interest Bonds held in Trust – Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which each Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.  
(g)   In default.  
(h)   Rates reflect the effective yields at purchase date.  

 

 

Glossary:

 

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

 

22   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds III Statements of Assets and Liabilities

March 31, 2012 (unaudited)

 

 
        Municipal III        

California

Municipal III

       

New York

Municipal III

 
     

Assets:

                 

Investments, at value (cost-$512,977,995, $336,064,128 and $83,832,723, respectively)

      $550,470,951          $368,375,971          $90,447,032   

Cash

      82,187          7,566,405          1,469,015   

Interest receivable

      9,332,482          5,606,677          1,101,348   

Deposits with brokers for futures contracts collateral

               84,000          28,000   

Receivable for variation margin on futures contracts

               33,750          11,250   

Prepaid expenses and other assets

      64,750          43,395          32,010   

Total Assets

      559,950,370          381,710,198          93,088,655   
     
Liabilities:                  

Payable for floating rate notes issued

      32,121,219          40,288,688          8,932,500   

Dividends payable to common and preferred shareholders

      2,270,725          1,318,231          296,417   

Investment management fees payable

      266,803          172,530          42,558   

Interest payable

      122,723          69,502          9,278   

Accrued expenses and other liabilities

      211,404          202,905          75,559   

Total Liabilities

      34,992,874          42,051,856          9,356,312   

Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 7,560, 5,000 and 1,280 shares issued and outstanding, respectively)

      189,000,000          125,000,000          32,000,000   

Net Assets Applicable to Common Shareholders

      $335,957,496          $214,658,342          $51,732,343   
     
Composition of Net Assets Applicable to Common Shareholders:                  

Common Shares:

                 

Par value ($0.00001 per share)

      $324          $219          $56   

Paid-in-capital in excess of par

      456,901,313          309,121,788          79,110,997   

Undistributed net investment income

      4,293,364          5,503,887          1,863,982   

Accumulated net realized loss

      (162,731,634)          (132,205,037)          (35,836,944)   

Net unrealized appreciation of investments and futures contracts

      37,494,129          32,237,485          6,594,252   

Net Assets Applicable to Common Shareholders

      $335,957,496          $214,658,342          $51,732,343   

Common Shares Issued and Outstanding

      32,361,718          21,923,669          5,624,446   

Net Asset Value Per Common Share

      $10.38          $9.79          $9.20   

 

See accompanying Notes to Financial Statements   3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     23   


Table of Contents

PIMCO Municipal Income Funds III Statements of Operations

Six Months ended March 31, 2012 (unaudited)

 

 
        Municipal III         California
Municipal III
        New York
Municipal III
 
     

Investment Income:

                 

Interest

      $15,532,637          $10,780,607          $2,870,933   
     
Expenses:                  

Investment management fees

      1,665,443          1,071,699          267,736   

Interest expense

      183,549          143,122          31,294   

Auction agent fees and commissions

      155,397          99,834          27,203   

Custodian and accounting agent fees

      71,771          43,420          25,485   

Audit and tax services

      36,115          29,318          19,983   

Shareholder communications

      23,729          16,601          11,348   

Trustees’ fees and expenses

      23,412          14,726          3,678   

Transfer agent fees

      16,896          16,885          16,880   

New York Stock Exchange listing fees

      10,087          8,359          8,263   

Insurance expense

      5,987          3,894          1,210   

Legal fees

      4,666          2,748          9,580   

Miscellaneous

      6,491          6,137          5,768   

Total Expenses

      2,203,543          1,456,743          428,428   

Less: investment management fees waived

      (128,111)          (82,438)          (20,595)   

custody credits earned on cash balances

      (504)          (1,461)          (277)   

Net Expenses

      2,074,928          1,372,844          407,556   
     

Net Investment Income

      13,457,709          9,407,763          2,463,377   
     
Realized and Change In Unrealized Gain (Loss):                  

Net realized gain (loss) on:

                 

Investments

      (2,089,485)          508,262          298,203   

Futures contracts

      273,273          174,895          54,654   

Swaps

      (2,252,700)          (3,997,978)          (526,059)   

Net change in unrealized appreciation/depreciation of:

                 

Investments

      23,000,708          12,822,129          1,035,959   

Futures contracts

               (57,213)          (19,071)   

Swaps

      3,672,956          4,663,255          637,653   

Net realized and change in unrealized gain on investments, futures contracts and swaps

      22,604,752          14,113,350          1,481,339   

Net Increase in Net Assets Resulting from Investment Operations

      36,062,461          23,521,113          3,944,716   

Dividends on Preferred Shares from Net Investment Income

      (191,597)          (125,715)          (33,225)   

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations

      $35,870,864          $23,395,398          $3,911,491   

 

24   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12   See accompanying Notes to Financial Statements


Table of Contents

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3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     25   


Table of Contents

PIMCO Municipal Income Funds III Statements of Changes in Net Assets

Applicable to Common Shareholders

 

 
        Municipal III  
        Six Months
ended
March 31, 2012
(unaudited)
        Year ended
September 30, 2011
 

Investment Operations:

           

Net investment income

      $13,457,709          $28,086,793   

Net realized loss on investments, futures contracts and swaps

      (4,068,912)          (4,849,640)   

Net change in unrealized appreciation/depreciation of investments, futures contracts and swaps

      26,673,664          (14,805,435)   

Net increase in net assets resulting from investment operations

      36,062,461          8,431,718   

Dividends on Preferred Shares from Net Investment Income

      (191,597)          (651,323)   

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

      35,870,864          7,780,395   

Dividends to Common Shareholders from Net Investment Income

      (13,582,820)          (27,072,603)   
   
Common Share Transactions:            

Reinvestment of dividends

      648,735          1,473,126   

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

      22,936,779          (17,819,082)   
   
Net Assets Applicable to Common Shareholders:            

Beginning of period

      313,020,717          330,839,799   

End of period (including undistributed net investment income of $4,293,364 and $4,610,072; $5,503,887 and $4,108,834; $1,863,982 and $1,204,306; respectively)

      $335,957,496          $313,020,717   
   

Common Shares Issued in Reinvestment of Dividends

      61,073          146,402   

 

26   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds III Statements of Changes in Net Assets

Applicable to Common Shareholders (continued)

 

   
California Municipal III         New York Municipal III  
Six Months
ended
March 31, 2012
(unaudited)
      Year ended
September 30, 2011
        Six Months
ended
March 31, 2012
(unaudited)
        Year ended
September 30, 2011
 
                   
$9,407,763       $16,886,814          $2,463,377          $3,847,375   
(3,314,821)       (8,192,235)          (173,202)          (1,231,817)   
    
17,428,171
      (4,941,083)          1,654,541          (2,130,334)   
23,521,113       3,753,496          3,944,716          485,224   
(125,715)       (428,181)          (33,225)          (110,402)   
    
23,395,398
      3,325,315          3,911,491          374,822   
(7,886,995)       (15,719,522)          (1,770,476)          (3,527,553)   
       
                   
401,553       825,372          101,165          243,118   
15,909,956       (11,568,835)          2,242,180          (2,909,613)   
       
                   
198,748,386       210,317,221          49,490,163          52,399,776   
    
    
$214,658,342
      $198,748,386          $51,732,343          $49,490,163   
       
42,958       94,251          11,221          28,553   

 

See accompanying Notes to Financial Statements   3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     27   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies

 

PIMCO Municipal Income Fund III (“Municipal III“), PIMCO California Municipal Income Fund III (“California Municipal III“) and PIMCO New York Municipal Income Fund III (“New York Municipal III“), each a “Fund” and collectively referred to as the “Funds” or “PIMCO Municipal Income Funds III“, were organized as Massachusetts business trusts on August 20, 2002. Prior to commencing operations on October 31, 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”) serves as the Funds’ investment manager and is an indirect, wholly-owned subsidiary of Allianz Asset Management of America L.P. (“AAM”), formerly Allianz Global Investors of America L.P. prior to December 31, 2011. 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 III invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from federal income taxes. Under normal market conditions, California Municipal III 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 III 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 financial statements in accordance with accounting principles generally accepted in the United States of America requires 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 May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). FASB concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRSs. The ASU is effective prospectively for interim or annual periods beginning on or after December 15, 2011. The Funds’ management is evaluating the implications of this change.

 

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures About Offsetting Assets and Liabilities,” 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 are currently evaluating the effect that the guidance may have on their financial statements.

 

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.

 

Portfolio securities and other financial instruments for which market quotations are not readily available, or for which a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees. The Funds’ investments are valued daily using prices supplied by an independent pricing service

 

28   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

The prices used by the Funds to value securities may differ from the value that would be realized if the securities 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 (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges

   

Level 3 — valuations based on significant unobservable inputs (including each Funds’ own assumptions in determining the fair value of investments)

 

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 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.

 

The valuation techniques used by the Funds to measure fair value during the six months ended March 31, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.

 

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 GAAP.

 

Municipal Bonds & Notes and Variable Rate Notes — Municipal bonds and 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 and 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.

 

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.

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     29   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

 

The Funds’ policy is to recognize transfers between levels at the end of the reporting period.

 

A summary of the inputs used at March 31, 2012 in valuing each Fund’s assets and liabilities is listed below (refer to the Schedules of Investments and Note 5(a) for more detailed information on Investments in Securities and Other Financial Instruments):

 

Municipal III:

                       
     Level 1 –
Quoted Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
   

Value at

3/31/12

 
Investments in Securities – Assets        

Municipal Bonds & Notes

         $ 534,712,703             $ 534,712,703   

Variable Rate Notes

           15,758,248               15,758,248   
Total Investments          $ 550,470,951             $ 550,470,951   

California Municipal III:

                       
     Level 1 –
Quoted Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
   

Value at

3/31/12

 
Investments in Securities – Assets        

California Municipal Bonds & Notes

         $ 353,918,438             $ 353,918,438   

Other Municipal Bonds & Notes

           13,148,773               13,148,773   

California Variable Rate Notes

           1,308,760               1,308,760   
Total Investments in Securities – Assets          $ 368,375,971             $ 368,375,971   
Other Financial Instruments* – Liabilities        

Interest Rate Contracts

  $ (57,213                 $ (57,213
Total Investments   $ (57,213   $ 368,375,971             $ 368,318,758   

New York Municipal III:

                       
     Level 1 –
Quoted Prices
    Level 2 –
Other Significant
Observable
Inputs
    Level 3 –
Significant
Unobservable
Inputs
    Value at
3/31/12
 
Investments in Securities – Assets        

New York Municipal Bonds & Notes

         $ 76,713,617             $ 76,713,617   

Other Municipal Bonds & Notes

           8,637,415               8,637,415   

New York Variable Rate Notes

           5,059,000               5,059,000   

Short-Term Investments

           37,000               37,000   
Total Investments in Securities – Assets          $ 90,447,032             $ 90,447,032   
Other Financial Instruments* – Liabilities        

Interest Rate Contracts

  $ (19,071                 $ (19,071
Total Investments   $ (19,071   $ 90,447,032             $ 90,427,961   

 

*   Other financial instruments are derivatives not reflected in the Schedules of Investments, such as futures contracts, which are valued at the unrealized appreciation (depreciation) of the instrument.  

 

There were no significant transfers between Levels 1 and 2 during the six months ended March 31, 2012.

 

30   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

 

A roll forward of fair value measurements using significant unobservable inputs (Level 3) for Municipal III for the six months ended March 31, 2012, was as follows:

 

     Beginning
Balance
9/30/11
    Purchases     Sales     Accrued
Discounts
(Premiums)
    Net
Realized
Gain (Loss)
    Net Change
in Unrealized
Appreciation/
Depreciation
    Transfers
into
Level 3
    Transfers
out of
Level 3**
    Ending
Balance
3/31/12
 
Investments in Securities – Assets               

Municipal Bonds & Notes:

                 

California

  $ 2,313,600             $ (205,000                 $ 172,649             $ (2,281,249       

 

**   Transferred out of Level 3 into Level 2 because sufficient observable inputs were available.  

 

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

 

(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 premium is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income over the lives of the respective securities.

 

(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. The Funds’ management has determined that its evaluation has resulted in no material impact to the Funds’ financial statements at March 31, 2012. The Funds’ federal 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 monthly to common shareholders. Distributions of net realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions to their respective shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are 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

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     31   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

The Funds may also invest in Inverse Floaters without transferring a fixed rate municipal bond into a special purpose 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.

 

The Funds’ restrictions on borrowings do not apply to the secured borrowings deemed to have occurred for accounting purposes. Inverse Floaters held by the Funds are exempt from registration under Rule 144A of the Securities Act of 1933.

 

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

 

(g) Custody Credits on Cash Balances

The Funds benefit from an expense offset arrangement with their custodian bank, whereby uninvested cash balances 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.

 

(h) Interest Expense

Interest expense relates to the Funds’ participation in floating rate notes held by third parties in conjunction with Inverse Floater transactions.

 

2. Principal Risks

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

 

Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the value 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

 

32   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

2. Principal Risks (continued)

 

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 the Funds hold 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 Funds’ sub-adviser, Pacific Investment Management Company LLC (the “Sub-Adviser”), an affiliate of the Investment Manager, 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 engage in transactions or purchase instruments that give rise to forms of leverage. In addition, to the extent the Funds employ leverage, interest costs may not be recovered by any appreciation of the securities purchased with the leverage proceeds and could exceed the Funds’ investment returns, resulting in greater losses.

 

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

 

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

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     33   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

3. Financial Derivative Instruments (continued)

 

sometimes 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 movements in interest rates and currency values. A futures contract is an agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract, the Funds are required to pledge to the broker an amount of cash or securities equal to the minimum “initial margin” requirements of the exchange. Pursuant to the contracts, the Funds agree to receive from or pay to the broker an amount of cash or securities equal to the daily fluctuation in the value of the contracts. Such receipts or payments are known as “variation margin” and are recorded by the Funds as unrealized appreciation or depreciation. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the value of the contracts at the time they were opened and the value at the time they were closed. Any unrealized appreciation or depreciation recorded is simultaneously reversed. The use of futures transactions involves various risks, including the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates and underlying hedging assets, and the 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-linked returns at specified, future intervals. Swap agreements are privately negotiated in the over-the-counter market (“OTC swaps”) and may be executed in a multilateral or other trade facility platform, such as a registered commodities exchange (“centrally cleared swaps”). The Funds enter into credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements in order to manage their exposure to credit, currency and interest rate risk. In connection with these agreements, securities may be identified as collateral 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 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

 

34   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

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.

 

The following is a summary of the fair valuation of the Funds’ derivatives categorized by risk exposure.

 

The effect of derivatives on the Statements of Assets and Liabilities at March 31, 2012:

 

California Municipal III:

     
Location   Interest Rate
Contracts
 
Asset derivatives:  

Receivable for variation margin on futures contracts*

  $ 33,750   
 

 

 

 

New York Municipal III:

     
Location  

Interest Rate

Contracts

 

Asset derivatives:

 

Receivable for variation margin on futures contracts*

  $ 11,250   
 

 

 

 

 

*   Included in the net unrealized depreciation of $57,213 and $19,071 on futures contracts for California Municipal III and New York Municipal III, respectively, as reported in section 5(a) of the Notes to Financial Statements.  

 

The effect of derivatives on the Statements of Operations for the six months ended March 31, 2012:

 

Municipal III:

     
Location   Interest Rate
Contracts
 
Net realized gain (loss) on:  

Futures contracts

  $ 273,273   

Swaps

    (2,252,700
         
Total net realized loss   $ (1,979,427
         
Net change in unrealized appreciation/depreciation of:  

Swaps

  $ 3,672,956   
         

California Municipal III:

     
Location   Interest Rate
Contracts
 

Net realized gain (loss) on:

 

Futures contracts

  $ 174,895   

Swaps

    (3,997,978
         

Total net realized loss

  $ (3,823,083
         

Net change in unrealized appreciation/depreciation of:

 

Futures contracts

  $ (57,213

Swaps

    4,663,255   
         

Total net change in unrealized appreciation/depreciation

  $ 4,606,042   
         

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     35   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

3. Financial Derivative Instruments (continued)

 

New York Municipal III:

     
Location   Interest Rate
Contracts
 

Net realized gain (loss) on:

 

Futures contracts

  $ 54,654   

Swaps

    (526,059
         

Total net realized loss

  $ (471,405
         

Net change in unrealized appreciation/depreciation of:

 

Futures contracts

  $ (19,071

Swaps

    637,653   
         

Total net change in unrealized appreciation/depreciation

  $ 618,582   
         

 

The average volume (measured at each fiscal quarter-end) of derivative activity during the six months ended March 31, 2012:

 

    Futures
Contracts(1)
    Interest Rate
Swap
Agreements(2)
 
     Short    

Municipal III

         $ 5,767   

California Municipal III

    (10     3,933   

New York Municipal III

    (3     600   

 

(1)  

Number of contracts

 
(2)  

Notional amount (in thousands)

 

 

4. Investment Manager/Sub-Adviser

 

Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of the Funds’ Board of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, each Fund’s investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.65% of each Fund’s average daily net assets inclusive of net assets attributable to any Preferred Shares that were outstanding. The Investment Manager has 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 period from July 1, 2011 through June 30, 2012. For the six months ended March 31, 2012, each Fund paid investment management fees at an annualized effective rate of 0.60% 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 each Fund’s 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, and not the Funds, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.

 

36   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

5. Investments in Securities

 

 

For the six months ended March 31, 2012, purchases and sales of investments, other than short-term securities, were as follows:

 

     Municipal III     California
Municipal III
    New York
Municipal III
 

Purchases

  $ 118,087,308      $ 19,297,345      $ 12,760,813   

Sales

    120,357,082        19,204,569        11,383,606   

 

(a) Futures contracts outstanding at March 31, 2012:

 

California Municipal III:

 

     Type     Contracts     Market
Value
(000s)
    Expiration
Date
    Unrealized
Depreciation
 

Short:

    30-Year U.S. Treasury Bond Futures        (30   $ (4,133     6/20/12      $ (57,213
         

 

 

 

 

New York Municipal III:

 

     Type     Contracts     Market
Value
(000s)
    Expiration
Date
    Unrealized
Depreciation
 

Short:

    30-Year U.S. Treasury Bond Futures        (10   $ (1,378     6/20/12      $ (19,071
         

 

 

 

 

At March 31, 2012, California Municipal III and New York Municipal III pledged cash collateral of $84,000, and $28,000, respectively, for futures contracts.

 

(b) Floating Rate Notes for the six months ended March 31, 2012:

 

The weighted average daily balance of Floating Rate Notes outstanding during the six months ended March 31, 2012 for Municipal III, California Municipal III and New York Municipal III was $41,799,500, $40,288,688 and $8,932,500 at a weighted average interest rate, including fees, of 0.86%, 0.70% and 0.69%, respectively.

 

6. Income Tax Information

Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.

 

At March 31, 2012, the aggregate cost basis and net unrealized appreciation of investments for federal income tax purposes were as follows:

 

    

Federal Tax
Cost Basis

    Unrealized
Appreciation
    Unrealized
Depreciation
   

Net
Unrealized
Appreciation

 

Municipal III

  $ 479,997,942      $ 45,975,365      $ 7,726,525      $ 38,248,840   

California Municipal III

    294,940,992        35,806,386        2,766,986        33,039,400   

New York Municipal III

    74,902,871        6,834,112        243,419        6,590,693   

 

Differences between book and tax cost were attributable to inverse floater transactions.

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     37   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

7. Auction-Rate Preferred Shares

 

 

Municipal III has 1,512 shares of Preferred Shares Series A, 1,512 shares of Preferred Shares Series B, 1,512 shares of Preferred Shares Series C, 1,512 shares of Preferred Shares Series D and 1,512 shares of Preferred Shares Series E outstanding, each with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.

 

California Municipal III has 2,500 shares of Preferred Shares Series A and 2,500 shares of Preferred Shares Series B outstanding, each with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.

 

New York Municipal III has 1,280 shares of Preferred Shares Series A outstanding, with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.

 

Dividends are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures (or through default procedures in the event of failed auctions). Distributions of net realized capital gains, if any, are paid annually.

 

For the six months ended March 31, 2012, the annualized dividend rates for each Fund ranged from:

 

     High     Low     At
March 31, 2012
 

Municipal III:

                 

Series A

    0.364     0.107     0.259

Series B

    0.274     0.107     0.274

Series C

    0.331     0.107     0.274

Series D

    0.364     0.107     0.274

Series E

    0.274     0.107     0.244

California Municipal III:

                 

Series A

    0.274     0.107     0.274

Series B

    0.364     0.107     0.274

New York Municipal III:

                 

Series A

    0.364     0.107     0.259

 

The Funds are subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Funds from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation preference plus any accumulated, unpaid dividends.

 

Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote separately as a class to elect two Trustees and on any matters affecting the rights of the Preferred Shares.

 

Since mid-February 2008, holders of auction-rate preferred shares (“ARPS”) issued by the Funds have been directly impacted by an unprecedented lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and the ARPS holders have continued to receive dividends at the defined “maximum rate” equal to the higher of the 30-day “AA” Composite Commercial Paper Rate multiplied by 110% or the Taxable Equivalent of the Short-Term Municipal Obligations Rate-defined as 90% of the quotient of (A) the per annum rate expressed on an interest equivalent basis equal to the Kenny S&P 30-day High Grade Index divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal) multiplied by 110% (which is a function of short-term interest rates and typically higher than the rate that would have otherwise been set through a successful auction). If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Funds’ common shareholders could be adversely affected.

 

38   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2012 (unaudited)

 

8. Subsequent Events

 

 

On April 2, 2012, the following dividends were declared to common shareholders’ payable May 1, 2012 to shareholders of record on April 12, 2012:

 

Municipal III

     $0.07 per common share

California Municipal III

     $0.06 per common share

New York Municipal III

     $0.0525 per common share

 

On May 1, 2012, the following dividends were declared to common shareholders’ payable June 1, 2012 to shareholders of record on May 11, 2012:

 

Municipal III

     $0.07 per common share

California Municipal III

     $0.06 per common share

New York Municipal III

     $0.0525 per common share

 

There were no other subsequent events that require recognition or disclosure. In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     39   


Table of Contents

PIMCO Municipal Income Fund III Financial Highlights

For a common share outstanding throughout each period:

 

       

Six Months
ended
March 31, 2012

(unaudited)

        Year ended September 30,  
              2011         2010         2009         2008         2007  

Net asset value, beginning of period

      $9.69          $10.29          $10.16          $10.81          $14.53          $14.90   
           

Investment Operations:

                                   

Net investment income

      0.42          0.87          0.86          0.96          1.29          1.17   

Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps

      0.70          (0.61       0.13          (0.67       (3.87       (0.40

Total from investment operations

      1.12          0.26          0.99          0.29          (2.58       0.77   
           

Dividends on Preferred Shares from Net Investment Income

      (0.01       (0.02       (0.02       (0.10       (0.30       (0.30

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

      1.11          0.24          0.97          0.19          (2.88       0.47   
           

Dividends to Common Shareholders from Net Investment Income

      (0.42       (0.84       (0.84       (0.84       (0.84       (0.84

Net asset value, end of period

      $10.38          $9.69          $10.29          $10.16          $10.81          $14.53   

Market price, end of period

      $11.80          $10.75          $11.45          $11.29          $11.17          $15.05   

Total Investment Return (1)

      14.07       2.01       9.90       11.02       (21.07 )%        1.38

RATIOS/SUPPLEMENTAL DATA:

                                   

Net assets applicable to common shareholders, end of period (000s)

      $335,957          $313,021          $330,840          $324,921          $342,926          $457,914   

Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)

      1.28 %*        1.44       1.40       1.92       2.48       2.73

Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)

      1.17 %*        1.28       1.26       1.44       1.23       1.10

Ratio of net investment income to average net assets (2)(5)

      8.32 %*        9.39       8.78       11.23       9.39       7.90

Preferred shares asset coverage per share

      $69,438          $66,404          $68,760          $67,977          $56,709          $67,378   

Portfolio turnover rate

      22       14       7       58       17       10

 

*   Annualized  
(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each period reported. Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.  
(2)   Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.  
(3)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See Note 1(g) in Notes to Financial Statements).  
(4)   Interest expense relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions.  
(5)   During the periods indicated above, the Investment Manager waived a portion of its fee. The effect of such waiver relative to the average net assets of common shareholders was 0.08% (annualized), 0.02%, 0.01%, 0.10%, 0.17% and 0.24%, for the six months ended March 31, 2012 and the years ended September 30, 2011, September 30, 2010, September 30, 2009, September 30, 2008 and September 30, 2007, respectively.  

 

40   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12   See accompanying Notes to Financial Statements


Table of Contents

PIMCO California Municipal Income Fund III Financial Highlights

For a common share outstanding throughout each period:

 

       

Six Months
ended

March 31, 2012

(unaudited)

        Year ended September 30,  
              2011         2010         2009         2008         2007  

Net asset value, beginning of period

      $9.08          $9.65          $9.55          $11.13          $14.48          $14.83   
           

Investment Operations:

                                   

Net investment income

      0.43          0.77          0.76          0.88          1.15          1.07   

Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps

      0.65          (0.60       0.08          (1.64       (3.49       (0.26

Total from investment operations

      1.08          0.17          0.84          (0.76       (2.34       0.81   
           

Dividends on Preferred Shares from Net Investment Income

      (0.01       (0.02       (0.02       (0.10       (0.29       (0.29

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

      1.07          0.15          0.82          (0.86       (2.63       0.52   
           

Dividends to Common Shareholders from Net Investment Income

      (0.36       (0.72       (0.72       (0.72       (0.72       (0.87

Net asset value, end of period

      $9.79          $9.08          $9.65          $9.55          $11.13          $14.48   

Market price, end of period

      $10.40          $9.53          $10.39          $10.03          $10.54          $14.20   

Total Investment Return (1)

      13.30       (0.47 )%        11.94       3.95       (21.60 )%        (11.38 )% 

RATIOS/SUPPLEMENTAL DATA:

                                   

Net assets applicable to common shareholders, end of period (000s)

      $214,658          $198,748          $210,317          $207,173          $240,436          $311,958   

Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)

      1.34 %*        1.48       1.45       1.77       2.75       2.94

Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)

      1.20 %*        1.32       1.31       1.48       1.21       1.16

Ratio of net investment income to average net assets (2)(5)

      9.19 %*        9.01       8.39       10.82       8.53       7.26

Preferred shares asset coverage per share

      $67,931          $64,749          $67,061          $66,432          $57,426          $67,140   

Portfolio turnover rate

      5       11       3       48       8       7

 

*   Annualized  
(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each period reported. Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.  
(2)   Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.  
(3)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See Note 1(g) in Notes to Financial Statements).  
(4)   Interest expense relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions.  
(5)   During the periods indicated above, the Investment Manager waived a portion of its fee. The effect of such waiver relative to the average net assets of common shareholders was 0.08% (annualized), 0.02%, 0.01%, 0.10%, 0.17% and 0.24%, for the six months ended March 31, 2012 and the years ended September 30, 2011, September 30, 2010, September 30, 2009, September 30, 2008 and September 30, 2007, respectively.  

 

See accompanying Notes to Financial Statements   3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     41   


Table of Contents

PIMCO New York Municipal Income Fund III Financial Highlights

For a common share outstanding throughout each period:

 

       

Six Months
ended
March 31, 2012

(unaudited)

        Year ended September 30,  
              2011         2010         2009         2008         2007  

Net asset value, beginning of period

      $8.82          $9.38          $9.10          $11.45          $14.57          $15.09   
           

Investment Operations:

                                   

Net investment income

      0.45          0.69          0.66          0.78          1.11          1.03   

Net realized and change in unrealized gain (loss) on investments, futures contracts, options written and swaps

      0.26          (0.60       0.27          (2.40       (3.30       (0.48

Total from investment operations

      0.71          0.09          0.93          (1.62       (2.19       0.55   
           

Dividends on Preferred Shares from Net Investment Income

      (0.01       (0.02       (0.02       (0.10       (0.30       (0.29

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

      0.70          0.07          0.91          (1.72       (2.49       0.26   
           

Dividends to Common Shareholders from Net Investment Income

      (0.32       (0.63       (0.63       (0.63       (0.63       (0.78

Net asset value, end of period

      $9.20          $8.82          $9.38          $9.10          $11.45          $14.57   

Market price, end of period

      $9.61          $9.00          $9.81          $9.65          $10.00          $13.57   

Total Investment Return (1)

      10.49       (1.27 )%        8.98       4.19       (22.55 )%        (13.12 )% 

RATIOS/SUPPLEMENTAL DATA:

                                   

Net assets applicable to common shareholders, end of period (000s)

      $51,732          $49,490          $52,400          $50,528          $63,151          $80,417   

Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)

      1.62 %*        1.73       1.66       2.30       3.02       3.18

Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)

      1.49 %*        1.58       1.56       1.74       1.34       1.31

Ratio of net investment income to average net assets (2)(5)

      9.78 %*        8.07       7.39       9.42       8.04       6.89

Preferred shares asset coverage per share

      $65,414          $63,663          $65,936          $64,474          $58,583          $67,749   

Portfolio turnover rate

      13       9       12       33       7       12

 

*   Annualized.  
(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each period reported. Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.  
(2)   Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.  
(3)   Inclusive of expenses offset by custody credits earned on cash balances at the custodian bank. (See Note 1(g) in Notes to Financial Statements).  
(4)   Interest expense relates to the liability for floating rate notes issued in connection with Inverse Floater transactions and/or participation in reverse repurchase agreement transactions.  
(5)   During the periods indicated above, the Investment Manager waived a portion of its fee. The effect of such waiver relative to the average net assets of common shareholders was 0.08% (annualized), 0.02%, 0.01%, 0.10%, 0.17% and 0.24%, for the six months ended March 31, 2012 and the years ended September 30, 2011, September 30, 2010, September 30, 2009, September 30, 2008 and September 30, 2007, respectively.  

 

42   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12   See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds III

Annual Shareholder Meeting Results/Changes to Board of Trustees/Proxy Voting

Policies & Procedures (unaudited)

 

Annual Shareholder Meeting Results:

 

The Funds held their annual meeting of shareholders on December 19, 2011. Common/Preferred shareholders voted as indicated below:

 

     Affirmative     Withheld Authority  

Municipal III

           

Election of Deborah A. DeCotis — Class III to serve until 2014

    28,525,025        1,010,376   

Election of Bradford K. Gallagher — Class II to serve until 2013

    28,309,254        953,147   

Re-election of John C. Maney† — Class III to serve until 2014

    28,598,142        664,259   

California Municipal III

           

Election of Deborah A. DeCotis — Class III to serve until 2014

    19,942,735        565,047   

Election of Bradford K. Gallagher — Class II to serve until 2013

    20,063,159        444,623   

Re-election of John C. Maney† — Class III to serve until 2014

    20,036,974        470,808   

New York Municipal III

           

Election of Deborah A. DeCotis — Class III to serve until 2014

    4,521,374        200,748   

Election of Bradford K. Gallagher — Class II to serve until 2013

    4,503,758        218,364   

Re-election of John C. Maney† — Class III to serve until 2014

    4,525,528        196,594   

 

The other members of the Board of Trustees at the time of the meeting, namely, Messrs. Paul Belica, Hans W. Kertess, James A. Jacobson*, William B. Ogden, IV and Alan Rappaport*, continued to serve as Trustees of the Funds.

 

*   Preferred Shares Trustee  
  Interested Trustee  

 

 

Changes to Board of Trustees:

 

Paul Belica retired from the Funds’ Board of Trustees effective December 31, 2011.

 

 

Proxy Voting Policies & Procedures:

 

A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the most recent twelve month period ended June 30 is available (i) without charge, upon request, by calling the Funds’ shareholder servicing agent at (800) 254-5197; (ii) on the Funds’ website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at www.sec.gov.

 

3.31.12   PIMCO Municipal Income Funds III Semi-Annual Report     43   


Table of Contents

PIMCO Municipal Income Funds III

A Note Regarding Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements (unaudited)

 

Reference is made to the section of the Funds’ September 30, 2011 Annual Report (the “September Annual Report”) entitled “Matters Relating to the Trustees’ Consideration of the Investment Management & Portfolio Management Agreements,” which discussed the material factors and conclusions that formed the basis for the Boards’ approval, at their June 14-15, 2011 in-person meetings (the “June 2011 contract review meeting”), of the continuance of the Funds’ Management Agreements with the Investment Manager (the “Advisory Agreements”) and Portfolio Management Agreements between the Investment Manager and the Sub-Adviser (the “Sub-Advisory Agreements”) for a one-year period commencing July 1, 2011.

 

Subsequent to the date of the June 2011 contract review meeting, it was discovered that there were certain inaccuracies in the information provided to the Boards by Morningstar Associates LLC (“Morningstar”) with respect to the performance and/or expense figures shown for the Funds and their related rankings among peer group funds. In consultation with the Investment Manager, Morningstar produced a revised version of the information correcting the identified inaccuracies, which was provided to the Trustees for their consideration at a meeting held on December 13-14, 2011.

 

In considering the revised information, the Trustees noted, among other differences, that the following information from the revised Morningstar materials differed from information summarized in the September Annual Report as having been considered by the Trustees at the June 2011 contract review meeting:

 

Municipal III:

The Fund actually ranked sixth, rather than ninth, out of thirteen funds in the expense peer group for total net expense ratio based on common share assets and leveraged assets combined.

 

With respect to Fund performance (based on net asset value), the Fund outperformed its benchmark and actually ranked tenth, rather than eleventh, out of twelve funds for the one-year period ended February 28, 2011.

 

California Municipal III:

The Fund actually ranked fifth, rather than ninth, out of twelve funds in the expense peer group for total net expense ratio based on common share and leveraged assets combined. The Fund actually ranked eighth, rather than sixth out of twelve funds in actual management fees.

 

With respect to Fund performance (based on net asset value), the Fund actually ranked seventh, rather than ninth, out of twelve funds for the one-year ended period ended February 28, 2011.

 

New York Municipal III:

The Fund actually ranked eleventh, rather than seventh, out of eleven funds in the expense peer group for total net expense ratio based on common share and leveraged assets combined. The Fund actually ranked fifth, rather than seventh, out of eleven funds in actual management fees.

 

With respect to Fund performance (based on net asset value), the Fund actually ranked eighth, rather than ninth, out of eleven funds for the one-year ended February 28, 2011.

 

After considering the revised Morningstar information and taking into account the other information and factors considered as part of the June 2011 contract review meeting, the Trustees, including the non-interested Trustees, determined at their December 2011 meeting that the revised Morningstar information, if it had been considered at the time of the June 2011 contract review meeting, would not have changed their determination to approve the continuance of the Funds’ Advisory Agreements and Sub-Advisory Agreements for a one-year period commencing July 1, 2011, as specified in the September Annual Report.

 

44   PIMCO Municipal Income Funds III Semi-Annual Report   3.31.12


Table of Contents
Trustees   Fund Officers

Hans W. Kertess
Chairman of the Board of Trustees

Deborah A. DeCotis

Bradford K. Gallagher

James A. Jacobson

John C. Maney

William B. Ogden, IV

Alan Rappaport

 

Brian S. Shlissel
President & Chief Executive Officer

Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer

Thomas J. Fuccillo
Vice President, Secretary & Chief Legal Officer

Scott Whisten
Assistant Treasurer

Richard J. Cochran
Assistant Treasurer

Orhan Dzemaili
Assistant Treasurer

Youse E. Guia
Chief Compliance Officer

Lagan Srivastava
Assistant Secretary

 

Investment Manager

Allianz Global Investors Fund Management LLC

1633 Broadway

New York, NY 10019

 

Sub-Adviser

Pacific Investment Management Company LLC

840 Newport Center Drive

Newport Beach, CA 92660

 

Custodian & Accounting Agent

State Street Bank & Trust Co.

Lafayette Corporate Center, 5th Floor

2 Avenue De Lafayette

Boston, MA 02111

 

Transfer Agent, Dividend Paying Agent and Registrar

BNY Mellon

P.O. Box 43027

Providence, RI 02940-3027

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

300 Madison Avenue

New York, NY 10017

 

Legal Counsel

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

 

This report, including the financial information herein, is transmitted to the shareholders of PIMCO Municipal Income Fund III, PIMCO California Municipal Income Fund III and PIMCO New York Municipal Income Fund III for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Funds or any securities mentioned in this report.

 

The financial information included herein is taken from the records of the Funds without examination by an independent registered public accounting firm, who did not express an opinion herein.

 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Funds may purchase their common shares in the open market.

 

The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of their fiscal year on Form N-Q. Each Fund’s Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Funds’ website at www.allianzinvestors.com/closedendfunds.

Information on the Funds is available at www.allianzinvestors.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (800) 254-5197.


Table of Contents

LOGO

 

 

Receive this report electronically and eliminate paper mailings.

To enroll, go to www.allianzinvestors.com/edelivery.

 

AZ606SA_033112

 

AGI-2012-03-27-3457


Table of Contents
ITEM 2. CODE OF ETHICS

Not required in this filing.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

Not required in this filing.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not required in this filing

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT

Not required in this filing

 

ITEM 6. SCHEDULE OF INVESTMENTS

 

  (a) The registrant’s Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.

 

  (b) Not applicable.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not required in this filing

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not required in this filing

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED COMPANIES

None

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.

 

ITEM 11. CONTROLS AND PROCEDURES

 

  (a) The registrant’s President and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

 

  (b) There were no significant changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. EXHIBITS
(a) (1)   Not required in this filing.
(a) (2)   Exhibit 99.302 Cert. — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(a) (3)   Not applicable

(b) Exhibit 99.906 Cert. — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant) PIMCO California Municipal Income Fund III
By  

/s/ Brian S. Shlissel

  President & Chief Executive Officer
Date:   May 30, 2012
By  

/s/ Lawrence G. Altadonna

  Treasurer, Principal Financial & Accounting Officer
Date:   May 30, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By  

/s/ Brian S. Shlissel

  President and Chief Executive Officer
Date:   May 30, 2012
By  

/s/ Lawrence G. Altadonna

  Treasurer, Principal Financial & Accounting Officer
Date:   May 30, 2012