PIMCO California Municipal Income Fund III
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, 2013

Date of reporting period: March 31, 2013

 

 

 


Table of Contents

Item 1. REPORT TO SHAREHOLDERS

 

LOGO


 

 

Semi-Annual Report

 

March 31, 2013

 

 

PIMCO Municipal Income Fund III

PIMCO California Municipal Income Fund III

PIMCO New York Municipal Income Fund III

 

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Table of Contents

Contents

 

Letter to Shareholders     2-3   
Fund Insights     4   
Performance & Statistics     5-6   
Schedules of Investments     7-24   
Statements of Assets and Liabilities     25   
Statements of Operations     26   
Statements of Changes in Net Assets     28-29   
Notes to Financial Statements     30-37   
Financial Highlights     38-40   
Annual Shareholder Meeting Results/Proxy Voting Policies & Procedures     41   

 

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Table of Contents

LOGO

Hans W. Kertess

Chairman

 

LOGO

Brian S. Shlissel

President & CEO

 

Dear Shareholder:

Municipal bonds performed well during the six-month reporting period ended March 31, 2013. Yields remained attractive relative to US Treasury bonds as US Treasuries lost some of their appeal as a safe haven investment amid signs of an improving economy. An increase in federal tax rates for top-earning US households also supported municipal securities during the period.

Six-Month Period in Review

For the fiscal six-month period ended March 31, 2013:

 

  PIMCO Municipal Income Fund III returned 4.28% on net asset value (“NAV”) and -4.10% on market price.

 

  PIMCO California Municipal Income Fund III returned 3.94% on NAV and -1.94% on market price.

 

  PIMCO New York Municipal Income Fund III returned 1.80% on NAV and -1.87% on market price.

The Barclays Municipal Bond Index returned a tax-advantaged 0.96% while the broad taxable bond market, as represented by the Barclays US Aggregate Bond Index, returned 0.09% during the reporting period.

As the fiscal reporting period began, US gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of US economic activity and the principal indicator of economic performance, was growing at a 3.1% annual rate. GDP growth slowed to a 0.4% annual pace during the fourth quarter of 2012, which the government indicated was due to the drop in defense spending. Economic data released early in 2013 suggests economic growth will remain modest.

The Federal Reserve (the “Fed”) maintained an accommodative monetary policy, and indicated interest rates are expected to remain low until the US unemployment rate falls to 6.5%. At March 31, 2013, unemployment stood at 7.6%.

According to The Securities Industry and Financial Markets Association (“SIMFA”), municipal issuance volume trended lower during the six-month period ended March 31, 2013. In October 2012, issuance was $34.6 billion, by February 2013, issuance had declined to $23.7 billion. However, SIMFA reported that issuance during January and February 2013 reflected a strong year-on-year increase over the comparable months in 2012.

 

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US Treasury bond interest rates edged higher during the six-month period, with the yield on the benchmark 10-year Treasury bond rising from 1.65% to 1.87%. Since municipal bonds tend to track comparable US Treasury bonds, their yields moved accordingly.

The Road Ahead

The Washington standoff regarding taxes and spending was partially resolved in the early hours of 2013, when Congress approved legislation which raised taxes on income, capital gains and dividends for households earning in excess of $450,000. However there are still unresolved issues as well as

new areas of concern, such as the Obama administration’s proposal to cap the amount of municipal bond interest deductable from taxes. According to the National League of Cities (“NLC”), if a cap is implemented it may force municipalities “to pull back projects or pass certain costs onto residents in order to go forward with much needed infrastructure projects.”

The fiscal situation at state and local levels remains challenging. The National Association of State Budget Officers reported that in aggregate, state tax collections are projected to pass pre-recession levels for the first time during 2013. However, revenues in 21 states will remain lower than in 2008. Meanwhile, the NLC indicated that general fund revenues for the 19,000 cities and towns it represents declined in 2012, the sixth consecutive year-over-year decline.

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

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

We remain dedicated to serving your investment needs.

Sincerely,

 

LOGO

Hans W. Kertess

Chairman of the Board of Trustees

 

LOGO

Brian S. Shlissel

President & Chief Executive Officer

 

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

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     3   


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PIMCO Municipal Income Funds III Fund Insights

March 31, 2013 (unaudited)

 

For the six-month period ended March 31, 2013, PIMCO Municipal Income III returned 4.28% on net asset value (“NAV”) and -4.10% on market price.

For the six-month period ended March 31, 2013, PIMCO California Municipal Income III returned 3.94% on NAV and -1.94% on market price.

For the six-month period ended March 31, 2013, PIMCO New York Municipal Income III returned 1.80% on NAV and -1.87% on market price.

The municipal bond market generated mixed results during the fiscal six-month reporting period ended March 31, 2013. The overall municipal market, as measured by the Barclays Municipal Bond Index (the “Index”), advanced during the first two months of the period. During this time, many states continued to benefit from both positive year-over-year tax receipts and technical drivers as new supply was not sufficient to meet investor demand. The Index declined in December 2012, as investor sentiment weakened due to uncertainties surrounding the “fiscal cliff” and the future tax-exempt status of municipal bonds. In January and February 2013, the Index registered positive returns, as the uncertainty of the tax status of municipal bonds subsided and demand resumed, albeit at a slower pace than in 2012. The Index, a measure of the broad municipal market, observed negative returns in March, primarily driven by seasonal technical factors, as investors rotated out of the asset class during tax season during a period of higher new issue supply and rising Treasury rates. During the six-month reporting period, the Index returned 0.96%. In comparison, the overall taxable fixed income market, as measured by the Barclays US Aggregate Bond Index, gained 0.09%.

An underweight duration relative to the benchmark contributed to performance of all three Funds as municipal yields moved higher during the six-months ended March 31, 2013. The Funds’ overweighting to the Industrial Revenue sector contributed to performance as this segment outperformed the Index. Municipal Income III’s overweight to revenue-backed municipal bonds was additive given the outperformance of revenue bonds versus the broad market index. New York Municipal Income III’s overweight to the Healthcare sector and California Municipal Income III’s overweight to the Tobacco sector contributed to performance as these higher beta sectors generally outperformed the Index as credit spreads compressed during the six-month period.

Each Funds’ underweighting to the Transportation sector detracted from performance as this sector outperformed in comparison to the Index. Municipal Income III’s and California Municipal Income III’s underweight to the Lease-Backed sector detracted from performance as this segment outperformed the Index. New York Municipal Income III’s underweight to Education sector detracted from performance during the period.

 

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PIMCO Municipal Income Funds III Performance & Statistics

March 31, 2013 (unaudited)

 

Municipal III:

 

Total Return(1):   Market Price      NAV  

Six Month

    4.10%         4.28%   

1 Year

    11.99%         15.12%   

5 Year

    5.28%         5.16%   

10 Year

    5.84%         5.00%   

Commencement of Operations (10/31/02) to 3/31/13

    5.33%         4.98%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/13

 

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Market Price/NAV:       

Market Price

    $12.33   

NAV

    $11.07   

Premium to NAV

    11.38%   

Market Price Yield(2)

    6.81%   

Leverage Ratio(3)

    37.97%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

California Municipal III:

 

Total Return(1):   Market Price      NAV  

Six Month

    1.94%         3.94%   

1 Year

    13.91%         12.58%   

5 Year

    3.21%         3.20%   

10 Year

    4.59%         4.03%   

Commencement of Operations (10/31/02) to 3/31/13

    4.05%         3.85%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/13

 

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Market Price/NAV:       

Market Price

    $11.08   

NAV

    $10.27   

Premium to NAV

    7.89%   

Market Price Yield(2)

    6.50%   

Leverage Ratio(3)

    41.26%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

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PIMCO Municipal Income Funds III Performance & Statistics

March 31, 2013 (unaudited)

 

New York Municipal III:

 

Total Return(1):   Market Price      NAV  

Six Month

    1.87%         1.80%   

1 Year

    12.40%         10.43%   

5 Year

    2.18%         0.36%   

10 Year

    3.46%         2.48%   

Commencement of Operations (10/31/02) to 3/31/13

    2.65%         2.45%   

 

Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 3/31/13

 

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Market Price/NAV:       

Market Price

    $10.14   

NAV

    $9.51   

Premium to NAV

    6.62%   

Market Price Yield(2)

    6.21%   

Leverage Ratio(3)

    42.08%   

Moody’s Ratings

(as a % of total investments)

 

 

LOGO

 

 

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

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

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

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

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

MUNICIPAL BONDS & NOTES – 96.9%

   
  Alabama – 1.9%    
$ 500     

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

  $ 569,900   
  9,000     

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

    9,414,720   
  1,000     

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

    1,190,480   
   

 

 

 
      11,175,100   
   

 

 

 
  Arizona – 6.6%    
 

Health Facs. Auth. Rev.,

   
  1,250     

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

    1,326,750   
  900     

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

    1,000,449   
  2,250     

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

    2,207,227   
 

Pima Cnty. Industrial Dev. Auth. Rev.,

   
  13,000     

5.00%, 9/1/39 (i)

    13,621,270   
  750     

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

    818,813   
  5,000     

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

    5,644,850   
  11,600     

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

    12,996,988   
   

 

 

 
      37,616,347   
   

 

 

 
  California – 14.0%    
 

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

   
  1,500     

5.00%, 10/1/29

    1,710,810   
  500     

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

    558,350   
  3,260     

5.00%, 10/1/42

    3,600,246   
 

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

   
  3,000     

4.50%, 6/1/27

    2,893,170   
  3,600     

5.125%, 6/1/47

    3,182,148   
  7,120     

5.75%, 6/1/47

    6,842,106   
 

Health Facs. Financing Auth. Rev.,

   
  2,500     

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

    2,960,000   
  600     

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

    636,378   
  1,500     

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

    1,806,375   
  3,350     

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

    3,119,687   
  130     

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

    139,942   
  2,000     

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

    2,724,340   
  1,500     

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

    1,769,100   
  1,250     

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

    1,405,513   
  1,600     

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

    1,761,072   
 

State, GO,

   
  5,000     

5.00%, 6/1/37

    5,412,700   
  5,300     

5.00%, 12/1/37

    5,786,593   

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  California (continued)    
$ 1,350     

5.25%, 3/1/38

  $ 1,500,093   
  1,300     

5.25%, 11/1/40

    1,466,842   
  3,200     

5.50%, 3/1/40

    3,745,984   
  2,500     

5.75%, 4/1/31

    2,942,100   
  5,000     

6.00%, 4/1/38

    5,922,750   
 

Statewide Communities Dev. Auth. Rev.,

   
  1,000     

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

    1,136,140   
  1,935     

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

    2,103,113   
  2,580     

Methodist Hospital Project, 6.625%, 8/1/29 (FHA)

    3,170,356   
  9,200     

Methodist Hospital Project, 6.75%, 2/1/38 (FHA)

    11,097,868   
  1,200     

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

    1,088,988   
   

 

 

 
      80,482,764   
   

 

 

 
  Colorado – 0.8%    
  500     

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

    378,865   
 

Health Facs. Auth. Rev., Ser. A,

   
  500     

Evangelical Lutheran, 6.125%, 6/1/38 (Pre-refunded @ $100 6/1/14) (c)

    533,850   
  2,000     

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

    2,152,580   
  500     

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

    679,365   
  500     

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

    577,980   
   

 

 

 
      4,322,640   
   

 

 

 
  Connecticut – 0.3%    
  1,250     

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

    1,425,900   
   

 

 

 
  District of Columbia – 2.0%    
  10,000     

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

    11,626,000   
   

 

 

 
  Florida – 6.3%    
  3,480     

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

    3,622,158   
 

Broward Cnty. Airport System Rev.,

   
  6,125     

5.00%, 10/1/42, Ser. Q-1

    6,680,721   
  500     

5.375%, 10/1/29, Ser. O

    568,020   
  4,500     

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

    5,247,225   
  3,000     

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

    3,314,280   
  350     

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

    405,857   
  2,500     

Hillsborough Cnty. Industrial Dev. Auth. Rev.,
Tampa General Hospital Project, 5.25%, 10/1/34, Ser. B (Pre-refunded @ $100, 10/1/13) (c)

    2,562,225   
  5,000     

Palm Beach Cnty. Solid Waste Auth. Rev., 5.00%, 10/1/31

    5,749,000   
  3,895     

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

    3,436,013   
  4,200     

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

    4,794,930   
   

 

 

 
      36,380,429   
   

 

 

 

 

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PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Georgia – 0.4%    
$ 1,750     

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

  $ 1,709,663   
  400     

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

    399,420   
   

 

 

 
      2,109,083   
   

 

 

 
  Hawaii – 0.3%    
  1,500     

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

    1,634,295   
   

 

 

 
  Illinois – 5.6%    
  5,000     

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

    5,378,900   
 

Finance Auth. Rev.,

   
  1,000     

Leafs Hockey Club Project, 5.875%, 3/1/27, Ser. A (b)(f)

    340,000   
  625     

Leafs Hockey Club Project, 6.00%, 3/1/37, Ser. A (b)(f)

    212,500   
  400     

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

    484,344   
  12,795     

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

    12,820,718   
  1,000     

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

    1,135,700   
  165     

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

    165,145   
  5,000     

Univ. of Chicago, 5.50%, 7/1/37, Ser. B (i)

    5,888,850   
  5,000     

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

    5,683,750   
   

 

 

 
      32,109,907   
   

 

 

 
  Indiana – 1.0%    
  500     

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

    501,190   
 

Portage, Tax Allocation, Ameriplex Project,

   
  1,000     

5.00%, 7/15/23

    1,025,470   
  775     

5.00%, 1/15/27

    787,834   
  2,800     

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

    3,631,180   
   

 

 

 
      5,945,674   
   

 

 

 
  Iowa – 0.1%    
 

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

   
  120     

5.50%, 11/15/27

    103,781   
  575     

5.50%, 11/15/37

    460,753   
   

 

 

 
      564,534   
   

 

 

 
  Kentucky – 0.6%    
  2,000     

Economic Dev. Finance Auth. Rev.,
Owensboro Medical Healthcare Systems, 6.375%, 6/1/40, Ser. A

    2,375,260   
  1,250     

Ohio Cnty. Pollution Control Rev., Big Rivers Electric Corp. Project, 6.00%, 7/15/31, Ser. A

    1,249,862   
   

 

 

 
      3,625,122   
   

 

 

 
  Louisiana – 1.6%    
 

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

   
  400     

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

    476,612   
  1,500     

Woman’s Hospital Foundation, 5.875%, 10/1/40, Ser. A

    1,728,795   
  1,000     

Woman’s Hospital Foundation, 6.00%, 10/1/44, Ser. A

    1,155,710   

 

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Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Louisiana (continued)    
 

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

   
$ 1,700     

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

  $ 1,803,768   
  2,000     

6.50%, 5/15/37

    2,420,660   
  1,345     

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

    1,363,628   
   

 

 

 
      8,949,173   
   

 

 

 
  Maryland – 0.8%    
  1,000     

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

    1,133,320   
 

Health & Higher Educational Facs. Auth. Rev.,

   
  1,500     

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

    1,539,645   
  700     

Charlestown Community, 6.25%, 1/1/41

    801,948   
  1,000     

Lifebridge Health, 6.00%, 7/1/41

    1,183,140   
   

 

 

 
      4,658,053   
   

 

 

 
  Massachusetts – 1.3%    
 

Dev. Finance Agcy. Rev.,

   
  300     

Adventcare Project, 7.625%, 10/15/37

    341,256   
  140     

Linden Ponds, Inc. Fac., zero coupon, 11/15/56, Ser. B (b)

    1,014   
  28     

Linden Ponds, Inc. Fac., 5.50%, 11/15/46, Ser. A-2 (b)

    22,180   
  529     

Linden Ponds, Inc. Fac., 6.25%, 11/15/39, Ser. A-1

    475,394   
  4,910     

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

    4,912,995   
  1,600     

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

    1,866,112   
   

 

 

 
      7,618,951   
   

 

 

 
  Michigan – 8.7%    
  1,500     

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

    1,620,465   
  9,320     

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

    9,386,545   
  5,000     

Detroit Water and Sewerage Dept. Rev., 5.25%, 7/1/39, Ser. A

    5,434,400   
 

Detroit Water Supply System Rev.,

   
  16,000     

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

    16,064,640   
  7,555     

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

    7,573,132   
  5,000     

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

    5,376,750   
  500     

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

    402,585   
  1,500     

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

    1,880,340   
  425     

State Hospital Finance Auth. Rev.,
Oakwood Group, 6.00%, 4/1/22, Ser. A (Pre-refunded @ $100, 4/1/13) (c)

    425,000   
  1,300     

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

    1,585,818   
   

 

 

 
      49,749,675   
   

 

 

 
  Minnesota – 0.0%    
  125     

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

    128,411   
   

 

 

 
  Missouri – 0.1%    
  250     

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

    247,200   
  500     

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

    530,415   
   

 

 

 
      777,615   
   

 

 

 

 

10   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  New Hampshire – 0.4%    
$ 2,000     

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

  $ 2,253,140   
   

 

 

 
  New Jersey – 8.3%    
  1,000     

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

    1,033,250   
  4,500     

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

    5,473,755   
  300     

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

    300,879   
  1,000     

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

    1,081,980   
 

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

   
  1,600     

4.75%, 6/1/34

    1,423,408   
  20,745     

5.00%, 6/1/41

    18,772,773   
  18,000     

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

    19,495,440   
   

 

 

 
      47,581,485   
   

 

 

 
  New Mexico – 0.2%    
  1,000     

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

    1,115,920   
   

 

 

 
  New York – 12.9%    
  9,800     

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

    11,741,184   
  5,000     

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

    5,827,350   
  1,700     

Liberty Dev. Corp. Rev., Goldman Sachs Headquarters, 5.50%, 10/1/37

    2,053,770   
 

Metropolitan Transportation Auth. Rev.,

   
  3,000     

5.00%, 11/15/36, Ser. D

    3,346,320   
  4,000     

5.00%, 11/15/43, Ser. B (e)

    4,385,800   
  1,150     

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

    768,453   
  10,450     

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

    12,768,123   
 

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

   
  4,900     

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

    5,258,631   
  4,000     

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

    4,366,600   
 

New York Liberty Dev. Corp. Rev.,

   
  10,000     

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

    11,147,900   
  11,255     

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

    12,378,024   
   

 

 

 
      74,042,155   
   

 

 

 
  North Carolina – 1.4%    
  1,500     

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

    1,517,220   
  6,000     

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

    6,527,640   
   

 

 

 
      8,044,860   
   

 

 

 
  Ohio – 4.3%    
  500     

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

    542,505   
 

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

   
  2,350     

5.875%, 6/1/47

    2,116,786   
  7,290     

6.00%, 6/1/42

    6,587,536   
  7,000     

6.50%, 6/1/47

    6,830,530   
  3,500     

Hamilton Cnty. Healthcare Rev., Christ Hospital Project, 5.00%, 6/1/42

    3,708,180   

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     11   


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Ohio (continued)    
$ 500     

Higher Educational Fac. Commission Rev.,
Univ. Hospital Health Systems, 6.75%, 1/15/39, Ser. 2009-A (Pre-refunded @ $100, 1/15/15) (c)

  $ 556,835   
  3,500     

JobsOhio Beverage System Rev., 5.00%, 1/1/38, Ser. A

    3,887,380   
  500     

Montgomery Cnty. Rev.,
Miami Valley Hospital, 6.25%, 11/15/39, Ser. A (Pre-refunded @ $100, 11/15/14) (c)

    548,115   
   

 

 

 
      24,777,867   
   

 

 

 
  Pennsylvania – 2.7%    
  1,000     

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

    1,109,450   
  4,000     

Berks Cnty. Municipal Auth. Rev., Reading Hospital Medical Center, 5.00%, 11/1/44, Ser. A

    4,339,920   
 

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

   
  750     

5.625%, 7/1/28

    793,275   
  670     

6.00%, 7/1/35

    712,250   
  1,000     

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

    1,117,450   
  1,250     

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

    909,938   
  100     

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

    109,731   
  500     

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

    554,200   
  2,000     

Philadelphia Water & Wastewater Rev., 5.00%, 11/1/28

    2,309,180   
  3,000     

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

    3,248,340   
   

 

 

 
      15,203,734   
   

 

 

 
  South Carolina – 0.3%    
  1,000     

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

    1,088,690   
  800     

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

    884,544   
   

 

 

 
      1,973,234   
   

 

 

 
  Tennessee – 0.5%    
  1,250     

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

    1,412,413   
  1,000     

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

    1,167,750   
   

 

 

 
      2,580,163   
   

 

 

 
  Texas – 8.9%    
  1,300     

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

    1,435,798   
  3,000     

Harris Cnty. Cultural Education Facs. Finance Corp. Rev.,
Baylor College of Medicine, 5.00%, 11/15/37

    3,336,150   
  2,000     

Municipal Gas Acquisition & Supply Corp. III Rev., 5.00%, 12/15/26

    2,184,600   
 

North Harris Cnty. Regional Water Auth. Rev.,

   
  5,500     

5.25%, 12/15/33

    6,149,825   
  5,500     

5.50%, 12/15/38

    6,172,320   
 

North Texas Tollway Auth. Rev.,

   
  3,000     

5.00%, 1/1/38

    3,262,470   
  600     

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

    700,560   
  10,800     

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

    12,228,300   
  700     

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

    776,657   

 

12   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Texas (continued)    
$ 2,000     

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

  $ 125,000   
  3,000     

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

    3,539,490   
 

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

   
  150     

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

    176,574   
  8,100     

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

    10,486,746   
  500     

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

    598,840   
   

 

 

 
      51,173,330   
   

 

 

 
  Virginia – 0.3%    
  1,000     

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

    1,134,540   
  1,000     

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

    550,000   
   

 

 

 
      1,684,540   
   

 

 

 
  Washington – 3.7%    
 

Health Care Facs. Auth. Rev.,

   
  500     

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

    538,440   
  1,000     

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

    1,266,940   
  18,680     

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

    19,340,151   
   

 

 

 
      21,145,531   
   

 

 

 
  West Virginia – 0.2%    
  1,000     

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

    1,280,540   
   

 

 

 
  Wisconsin – 0.4%    
 

Health & Educational Facs. Auth. Rev.,

   
  1,000     

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

    1,113,650   
  1,000     

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

    1,160,940   
   

 

 

 
      2,274,590   
   

 

 

 
 

Total Municipal Bonds & Notes (cost-$500,210,862)

    556,030,762   
   

 

 

 
     

 

VARIABLE RATE NOTES (a)(d)(g)(h) – 2.9%

   
  California – 0.4%    
  1,675     

Los Angeles Community College Dist., GO, 11.746%, 8/1/33, Ser. 3096

    2,317,949   
   

 

 

 
  Florida – 1.0%    
  5,000     

Greater Orlando Aviation Auth. Rev., 8.04%, 10/1/39, Ser. 3174

    6,098,850   
   

 

 

 
  Texas – 1.5%    
  6,500     

JPMorgan Chase Putters/Drivers Trust, GO, 7.974%, 2/1/17, Ser. 3480

    8,409,700   
   

 

 

 
 

Total Variable Rate Notes (cost-$13,080,592)

    16,826,499   
   

 

 

 
     

 

U.S. TREASURY OBLIGATIONS – 0.1%

   
  233     

U.S. Treasury Notes, 1.25%, 3/15/14 (cost-$235,398)

    235,430   
   

 

 

 

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     13   


Table of Contents

PIMCO Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
  Repurchase Agreements – 0.1%    
$ 500     

Citigroup Global Markets, Inc., dated 3/28/13, 0.24%, due 4/1/13, proceeds $500,013; collateralized by Freddie Mac, 1.02%, due 10/16/17, valued at $511,382 including accrued interest (cost-$500,000)

  $ 500,000   
   

 

 

 
  Total Investments (cost-$514,026,852) – 100.0%   $ 573,592,691   
   

 

 

 
 

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

  

Revenue Bonds:

     

Health, Hospital & Nursing Home Revenue

    18.9    

Tobacco Settlement Funded

    12.3       

Water Revenue

    10.5       

Natural Gas Revenue

    7.4       

Miscellaneous Revenue

    6.6       

Sewer Revenue

    5.0       

Port, Airport & Marina Revenue

    4.8       

Recreational Revenue

    4.4       

College & University Revenue

    3.4       

Highway Revenue Tolls

    3.4       

Industrial Revenue

    2.6       

Lease (Appropriation)

    2.4       

Local or Guaranteed Housing

    1.7       

Electric Power & Light Revenue

    1.5       

Transit Revenue

    1.5       

Miscellaneous Taxes

    1.0       

Resource Recovery Revenue

    1.0       

Ad Valorem Property Tax

    0.1       

Tax Increment/Allocation Revenue

    0.0       
 

 

 

     

Total Revenue Bonds

      88.5

General Obligation

      8.9   

Tax Allocation

      1.2   

Special Assessment

      1.0   

Certificates of Participation

      0.2   

Repurchase Agreements

      0.1   

U.S. Treasury Obligations

      0.1   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

14   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Fund III Notes to Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $18,929,612, representing 3.3% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  

 

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

 

(e)   When-issued or delayed-delivery. To be settled/delivered after March 31, 2013.  

 

(f)   In default.  

 

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

 

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

 

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

 

(j)   Floating Rate Notes for the six months ended March 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the six months ended March 31, 2013 was $32,048,691 at a weighted average interest rate, including fees, of 0.67%.  

 

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

 

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

Municipal Bonds & Notes

         $ 556,030,762             $ 556,030,762   

Variable Rate Notes

           16,826,499               16,826,499   

U.S. Treasury Obligations

           235,430               235,430   

Repurchase Agreements

           500,000               500,000   
 

 

 

   

 

 

   

 

 

   

 

 

 
Totals          $ 573,592,691             $ 573,592,691   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

Glossary:

 

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

 

See accompanying Notes to Financial Statements       3.31.13       PIMCO Municipal Income Funds III Semi-Annual Report     15   


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

CALIFORNIA MUNICIPAL BONDS & NOTES – 96.2%

   
$ 1,250     

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

  $ 1,395,875   
  1,000     

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

    983,640   
  1,150     

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

    1,154,807   
  2,000     

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

    2,391,980   
  550     

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

    601,326   
  1,415     

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

    1,415,141   
 

Educational Facs. Auth. Rev. (g),

   
  9,800     

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

    10,740,016   
  10,000     

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

    11,397,200   
  1,695     

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

    1,790,462   
 

Golden State Tobacco Securitization Corp. Rev.,

   
  11,000     

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

    11,477,730   
  4,000     

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

    4,173,720   
  21,865     

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

    21,011,609   
 

Health Facs. Financing Auth. Rev.,

   
  4,000     

Adventist Health System, 5.75%, 9/1/39, Ser. A

    4,649,760   
  1,935     

Catholic Healthcare West, 6.00%, 7/1/34, Ser. A

    2,033,762   
  4,000     

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

    4,736,000   
  450     

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

    468,095   
  500     

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

    603,745   
  6,000     

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

    6,076,020   
  1,300     

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

    1,423,071   
  2,900     

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

    3,276,884   
  1,000     

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

    1,107,940   
  5,000     

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

    5,526,050   
  500     

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

    530,315   
  1,200     

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

    1,445,100   
  500     

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

    561,795   
  150     

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

    162,864   
  5,020     

Long Beach Airport Rev., 5.00%, 6/1/40, Ser. A

    5,326,421   
  5,600     

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

    6,827,632   
  5,000     

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

    5,811,900   
  5,000     

Los Angeles Cnty. Public Works Financing Auth. Rev., 5.00%, 8/1/42

    5,516,850   
 

Los Angeles Department of Airports Rev.,

   
  6,950     

5.00%, 5/15/40, Ser. A

    7,749,667   
  2,000     

5.00%, 5/15/40, Ser. D

    2,230,120   
 

Los Angeles Department of Water & Power Rev.,

   
  6,000     

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

    6,296,700   
  10,000     

5.00%, 7/1/39, Ser. A (g)

    10,981,300   
  1,400     

5.00%, 7/1/43, Ser. B

    1,572,802   

 

16   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
 

Los Angeles Unified School Dist., GO,

   
$ 9,580     

4.75%, 1/1/28, Ser. A (NPFGC) (Pre-refunded @ $100 7/1/13) (c)

  $ 9,686,721   
  10,000     

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

    11,325,400   
  1,700     

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

    2,315,689   
  550     

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

    591,096   
  1,000     

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

    1,159,640   
  5,000     

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

    5,508,700   
  2,980     

Modesto Irrigation Dist., Capital Improvement Projects, CP,
5.00%, 7/1/33, Ser. A (NPFGC) (Pre-refunded @ $100, 7/1/13) (c)

    3,015,015   
  3,000     

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

    3,264,000   
  905     

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

    1,067,357   
  1,250     

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

    1,337,225   
  1,250     

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

    1,344,212   
  1,920     

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

    1,982,938   
  5,000     

Riverside, CP, 5.00%, 9/1/33 (AMBAC) (Pre-refunded @ $100, 9/1/13) (c)

    5,098,800   
  500     

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

    502,070   
 

Sacramento Municipal Utility Dist. Rev., Ser. R,

   
  995     

5.00%, 8/15/33 (NPFGC)

    1,008,214   
  2,255     

5.00%, 8/15/33 (NPFGC) (Pre-refunded @ $100 8/15/13) (c)

    2,294,733   
  6,250     

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

    6,859,250   
  12,075     

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

    12,120,402   
  4,000     

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

    4,612,880   
  2,200     

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

    2,534,510   
  1,000     

San Francisco Public Utilities Commission Water Rev., 5.00%, 11/1/43

    1,124,870   
  1,500     

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

    1,806,015   
  12,200     

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

    12,308,336   
  1,000     

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

    1,100,670   
  500     

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

    552,400   
  1,200     

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

    1,423,368   
  4,425     

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

    4,355,262   
  7,300     

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

    8,647,215   
 

State Public Works Board Rev.,

   
  2,000     

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

    2,382,000   
  2,500     

Judicial Council Projects, 5.00%, 3/1/38, Ser. A (b)

    2,715,625   
  2,050     

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

    2,055,678   
 

Statewide Communities Dev. Auth. Rev.,

   
  500     

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

    568,070   

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     17   


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
$ 1,300     

California Baptist Univ., 5.50%, 11/1/38, Ser. A

  $ 1,391,169   
  460     

California Baptist Univ., 6.50%, 11/1/21

    542,059   
  1,015     

Catholic Healthcare West, 5.50%, 7/1/31, Ser. D

    1,130,791   
  1,015     

Catholic Healthcare West, 5.50%, 7/1/31, Ser. E

    1,125,625   
  4,500     

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

    4,794,300   
  1,000     

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

    1,141,300   
  7,300     

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

    7,461,549   
  15,000     

Memorial Health Services, 5.50%, 10/1/33, Ser. A (Pre-refunded @ $100 4/1/13) (c)

    15,000,000   
  1,780     

Methodist Hospital Project, 6.625%, 8/1/29 (FHA)

    2,187,300   
  6,430     

Methodist Hospital Project, 6.75%, 2/1/38 (FHA)

    7,756,445   
  3,100     

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

    3,493,049   
  1,800     

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

    2,167,650   
  3,505     

The Internext Group, CP, 5.375%, 4/1/30

    3,514,849   
  11,000     

Trinity Health, 5.00%, 12/1/41

    12,197,130   
  2,000     

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

    2,196,180   
 

Tobacco Securitization Agcy. Rev.,

   
  8,100     

Alameda Cnty., 5.875%, 6/1/35

    8,142,363   
  7,000     

Alameda Cnty., 6.00%, 6/1/42

    7,032,340   
  2,000     

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

    2,000,160   
  5,000     

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

    4,537,450   
  2,950     

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

    2,956,608   
  5,000     

Univ. of California Rev., 5.00%, 5/15/42, Ser. G

    5,547,950   
 

West Basin Municipal Water Dist., CP, Ser. A,

   
  350     

5.00%, 8/1/30 (NPFGC)

    352,856   
  650     

5.00%, 8/1/30 (NPFGC) (Pre-refunded @ $100 8/1/13) (c)

    660,238   
  2,000     

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

    2,176,560   
  1,000     

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

    1,040,520   
  2,750     

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

    2,799,500   
   

 

 

 
 

Total California Municipal Bonds & Notes (cost-$335,847,925)

    373,462,601   
   

 

 

 
     

 

OTHER MUNICIPAL BONDS & NOTES – 3.1%

   
  Indiana – 1.4%    
  5,000     

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

    5,212,800   
   

 

 

 
  New Jersey – 0.2%    
  1,000     

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

    889,630   
   

 

 

 
  New York – 0.9%    
  3,300     

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

    3,541,527   
   

 

 

 
  Ohio – 0.6%    
  2,000     

American Municipal Power, Inc. Rev., Fremont Energy Center Project, 5.00%, 2/15/42, Ser. B

    2,174,440   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$8,793,720)

    11,818,397   
   

 

 

 

 

18   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO California Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  

 

CALIFORNIA VARIABLE RATE NOTES (a)(d)(e)(f) – 0.4%

   
$ 1,000     

Los Angeles Community College Dist., GO,
11.746%, 8/1/33, Ser. 3096 (cost-$996,688)

  $ 1,383,850   
   

 

 

 
     

 

SHORT-TERM INVESTMENTS – 0.3%

   
  U.S. Government Agency Securities (h) – 0.3%    
  300     

Federal Home Loan Bank Discount Notes, 0.104%, 4/5/13

    299,997   
  1,000     

Freddie Mac Discount Notes, 0.162%, 1/15/14

    998,715   
   

 

 

 
 

Total U.S. Government Agency Securities (cost-$1,298,712)

    1,298,712   
   

 

 

 
     
  U.S. Treasury Obligations – 0.0%    
  100     

U.S. Treasury Bills, 0.068%, 4/18/13 (h) (cost-$99,997)

    99,997   
   

 

 

 
 

Total Short-Term Investments (cost-$1,398,709)

    1,398,709   
   

 

 

 
  Total Investments (cost-$347,037,042) – 100.0%   $ 388,063,557   
   

 

 

 
 

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

  

Revenue Bonds:

     

Health, Hospital & Nursing Home Revenue

    25.2    

Tobacco Settlement Funded

    15.3       

College & University Revenue

    8.7       

Electric Power & Light Revenue

    5.9       

Lease (Abatement)

    4.2       

Port, Airport & Marina Revenue

    3.9       

Water Revenue

    3.9       

Natural Gas Revenue

    3.0       

Sewer Revenue

    1.5       

Tax Increment/Allocation Revenue

    1.1       

Local or Guaranteed Housing

    0.7       

Hotel Occupancy Tax

    0.5       

Highway Revenue Tolls

    0.4       
 

 

 

     

Total Revenue Bonds

      74.3

General Obligation

      14.1   

Certificates of Participation

      6.1   

Tax Allocation

      4.6   

Special Tax

      0.6   

U.S. Government Agency Securities

      0.3   

U.S. Treasury Obligations

      0.0   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     19   


Table of Contents

PIMCO California Municipal Income Fund III Notes to Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $7,940,862, representing 2.0% of total investments.  

 

(b)   Illiquid.  

 

(c)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).  

 

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

 

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

 

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

 

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

 

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

 

(i)   Floating Rate Notes for the six months ended March 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the six months ended March 31, 2013 was $33,623,688 at a weighted average interest rate, including fees, of 0.68%.  

 

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

 

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

California Municipal Bonds & Notes

         $ 373,462,601             $ 373,462,601   

Other Municipal Bonds & Notes

           11,818,397               11,818,397   

California Variable Rate Notes

           1,383,850               1,383,850   

Short-Term Investments

           1,398,709               1,398,709   
 

 

 

   

 

 

   

 

 

   

 

 

 
Totals          $ 388,063,557             $ 388,063,557   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

Glossary:

 

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

 

20   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       See accompanying Notes to Financial Statements


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited)

 

Principal
Amount
(000s)
         Value  

 

NEW YORK MUNICIPAL BONDS & NOTES – 93.0%

   
$ 1,000     

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

  $ 1,198,910   
  1,500     

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

    1,687,470   
  730     

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

    643,495   
  800     

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

    826,616   
  4,000     

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

    4,661,880   
 

Liberty Dev. Corp. Rev.,

   
  1,050     

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

    1,246,843   
  1,810     

Goldman Sachs Headquarters, 5.25%, 10/1/35

    2,119,800   
  2,400     

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

    2,899,440   
  1,500     

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

    1,739,940   
 

Metropolitan Transportation Auth. Rev.,

   
  5,220     

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

    5,304,042   
  500     

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

    559,910   
  4,000     

5.00%, 11/15/43, Ser. B (d)

    4,385,800   
  3,000     

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

    3,411,570   
  500     

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

    334,110   
 

New York City Industrial Dev. Agcy. Rev.,

   
  600     

Pilot Queens Baseball Stadium, 6.50%, 1/1/46 (AGC)

    687,186   
  2,200     

Yankee Stadium, 7.00%, 3/1/49 (AGC)

    2,688,026   
 

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

   
  5,000     

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

    5,458,250   
  1,500     

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

    1,692,945   
  2,000     

New York City Transitional Finance Auth. Rev., 5.00%, 5/1/39, Ser. F-1

    2,259,760   
 

New York City Trust for Cultural Res. Rev.,

   
  2,000     

Wildlife Conservation Society, 5.00%, 8/1/33, Ser. A

    2,354,840   
  3,450     

Wildlife Conservation Society,
5.00%, 2/1/34 (FGIC-NPFGC) (Pre-refunded @ $100 2/1/14) (b)

    3,586,585   
  4,000     

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

    4,683,800   
  1,000     

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

    1,008,710   
  400     

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

    450,848   
  600     

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

    709,734   
 

State Dormitory Auth. Rev.,

   
  1,000     

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

    1,117,470   
  2,350     

5.00%, 7/1/42, Ser. A

    2,642,034   
  2,250     

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

    2,253,285   
  250     

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

    294,928   
  3,740     

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

    3,749,275   
  1,200     

Teachers College, 5.50%, 3/1/39

    1,305,732   

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     21   


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  
$ 500     

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

  $ 561,430   
  620     

Winthrop Univ. Hospital Assoc., 5.50%, 7/1/32, Ser. A (Pre-refunded @ $100 7/1/13) (b)

    627,961   
  2,500     

Winthrop-Nassau Univ., 5.75%, 7/1/28 (Pre-refunded @ $100 7/1/13) (b)

    2,533,625   
  750     

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

    827,888   
  1,600     

State Thruway Auth. Rev., 5.00%, 1/1/42, Ser. I

    1,756,608   
 

State Urban Dev. Corp. Rev.,

   
  2,400     

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

    2,575,248   
  2,200     

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

    2,464,814   
  2,000     

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

    2,327,480   
  1,400     

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

    1,527,288   
 

TSACS, Inc. Rev., Ser. 1,

   
  2,000     

5.00%, 6/1/26

    1,975,200   
  100     

5.00%, 6/1/34

    90,765   
  2,000     

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

    2,022,100   
  600     

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

    702,276   
  100     

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

    105,505   
   

 

 

 
 

Total New York Municipal Bonds & Notes (cost-$80,586,544)

    88,061,422   
   

 

 

 
     

 

OTHER MUNICIPAL BONDS & NOTES – 2.7%

   
  District of Columbia – 0.2%    
  175     

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

    208,296   
   

 

 

 
  Ohio – 1.8%    
 

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

   
  1,250     

5.875%, 6/1/47

    1,125,950   
  600     

6.50%, 6/1/47

    585,474   
   

 

 

 
      1,711,424   
   

 

 

 
  U. S. Virgin Islands – 0.6%    
  500     

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

    552,785   
   

 

 

 
  Washington – 0.1%    
  135     

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

    137,862   
   

 

 

 
 

Total Other Municipal Bonds & Notes (cost-$2,281,057)

    2,610,367   
   

 

 

 
     

 

U.S. TREASURY OBLIGATIONS – 2.2%

   
  U.S. Treasury Notes – 2.2%    
  100     

0.125%, 12/31/13

    100,004   
  100     

0.25%, 11/30/13

    100,082   
  992     

1.25%, 2/15/14

    1,001,572   
  408     

1.25%, 3/15/14

    412,255   
  500     

1.875%, 2/28/14

    507,871   
   

 

 

 
 

Total U.S. Treasury Obligations (cost-$2,121,537)

    2,121,784   
   

 

 

 

 

22   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO New York Municipal Income Fund III Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

Principal
Amount
(000s)
         Value  

 

NEW YORK VARIABLE RATE NOTES (a)(c)(e)(f) – 0.7%

   
$ 500     

JPMorgan Chase Putters/Drivers Trust Rev., Unity Hospital Rochester Project,
8.864%, 8/15/18, Ser. 3829 (FHA) (cost-$453,564)

  $ 636,170   
   

 

 

 
     

 

SHORT-TERM INVESTMENTS – 1.4%

   
  U.S. Government Agency Securities (h) – 1.3%    
  1,200     

Freddie Mac Discount Notes, 0.162%, 1/14/14 – 2/4/14 (cost-$1,198,427)

    1,198,427   
   

 

 

 
  Repurchase Agreements – 0.1%    
  100     

Citigroup Global Markets, Inc.,
dated 3/28/13, 0.24%, due 4/1/13, proceeds $100,003; collateralized by Freddie Mac,
1.02%, due 10/16/17, valued at $102,477 including accrued interest (cost-$100,000)

    100,000   
   

 

 

 
 

Total Short-Term Investments (cost-$1,298,427)

    1,298,427   
   

 

 

 
  Total Investments (cost-$86,741,129) – 100.0%   $ 94,728,170   
   

 

 

 
 

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

  

Revenue Bonds:

     

Health, Hospital & Nursing Home Revenue

    19.0    

Industrial Revenue

    11.1       

Transit Revenue

    10.8       

Water Revenue

    9.5       

Income Tax Revenue

    8.9       

Recreational Revenue

    7.9       

College & University Revenue

    6.9       

Miscellaneous Revenue

    6.1       

Miscellaneous Taxes

    4.9       

Tobacco Settlement Funded

    4.4       

Highway Revenue Tolls

    4.3       

Electric Power & Light Revenue

    1.8       

Port, Airport & Marina Revenue

    0.8       
 

 

 

     

Total Revenue Bonds

      96.4

U.S. Treasury Obligations

      2.2   

U.S. Government Agency Securities

      1.3   

Repurchase Agreements

      0.1   
   

 

 

 

Total Investments

      100.0
   

 

 

 

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     23   


Table of Contents

PIMCO New York Municipal Income Fund III Notes to Schedule of Investments

March 31, 2013 (unaudited) (continued)

 

(a)   Private Placement – Restricted as to resale and may not have a readily available market. Security with a value of $636,170, representing 0.7% of total investments.  

 

(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)   When-issued or delayed-delivery. To be settled/delivered after March 31, 2013.  

 

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

 

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

 

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

 

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

 

(i)   Floating Rate Notes for the six months ended March 31, 2013: The weighted average daily balance of Floating Rate Notes outstanding during the six months ended March 31, 2013 was $8,812,360 at a weighted average interest rate, including fees, of 0.68%.  

 

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

 

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

New York Municipal Bonds & Notes

         $ 88,061,422             $ 88,061,422   

Other Municipal Bonds & Notes

           2,610,367               2,610,367   

U.S. Treasury Obligations

           2,121,784               2,121,784   

New York Variable Rate Notes

           636,170               636,170   

Short-Term Investments

           1,298,427               1,298,427   
 

 

 

   

 

 

   

 

 

   

 

 

 
Totals          $ 94,728,170             $ 94,728,170   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

Glossary:

 

AGC     -      insured by Assured Guaranty Corp.
AGM     -      insured by Assured Guaranty Municipal Corp.
AMBAC     -      insured by American Municipal Bond Assurance Corp.
FGIC     -      insured by Financial Guaranty Insurance Co.
FHA     -      insured by Federal Housing Administration
GNMA     -      insured by Government National Mortgage Association
NPFGC     -      insured by National Public Finance Guarantee Corp.

 

24   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds III Statements of Assets and Liabilities

March 31, 2013 (unaudited)

 

 
        Municipal III         California
Municipal III
        New York
Municipal III
 
     

Assets:

                 

Investments, at value (cost-$514,026,852, $347,037,042 and $86,741,129, respectively)

      $573,592,691          $388,063,557          $94,728,170   

Cash

      575,376          23,997          588,451   

Interest receivable

      8,966,142          5,916,616          1,078,311   

Receivable for investments sold

      3,175,423          50,000          1,031,808   

Prepaid expenses and other assets

      69,541          46,466          34,112   

Total Assets

      586,379,173          394,100,636          97,460,852   
     
Liabilities:                  

Payable for Floating Rate Notes issued

      30,921,219          33,623,688          6,933,000   

Payable for investments purchased

      4,375,320          7,825,484          4,375,320   

Dividends payable to common and preferred shareholders

      2,277,356          1,324,301          296,933   

Investment management fees payable

      302,789          193,543          47,337   

Interest payable

      55,428          61,565          8,532   

Accrued expenses and other liabilities

      222,221          251,939          206,851   

Total Liabilities

      38,154,333          43,280,520          11,867,973   

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

      $359,224,840          $225,820,116          $53,592,879   
     
Composition of Net Assets Applicable to Common Shareholders:                  

Common Shares:

                 

Par value ($0.00001 per share)

      $324          $220          $56   

Paid-in-capital in excess of par

      457,887,501          309,335,563          79,232,185   

Undistributed net investment income

      2,507,853          7,332,537          1,954,377   

Accumulated net realized loss

      (160,738,386)          (131,859,315)          (35,579,666)   

Net unrealized appreciation

      59,567,548          41,011,111          7,985,927   

Net Assets Applicable to Common Shareholders

      $359,224,840          $225,820,116          $53,592,879   

Common Shares Issued and Outstanding

      32,443,472          21,990,812          5,636,701   

Net Asset Value Per Common Share

      $11.07          $10.27          $9.51   

 

See accompanying Notes to Financial Statements       3.31.13       PIMCO Municipal Income Funds III Semi-Annual Report     25   


Table of Contents

PIMCO Municipal Income Funds III Statements of Operations

Six Months ended March 31, 2013 (unaudited)

 

 
        Municipal III         California
Municipal III
        New York
Municipal III
 
     

Investment Income:

                 

Interest

      $14,757,713          $11,024,733          $2,262,848   
     
Expenses:                  

Investment management

      1,790,569          1,142,382          280,818   

Auction agent and commissions

      149,797          97,987          25,459   

Interest

      108,220          115,480          30,405   

Custodian and accounting agent

      51,151          37,767          22,735   

Audit and tax services

      39,874          33,388          24,405   

Shareholder communications

      26,973          15,486          10,881   

Trustees

      20,912          13,027          3,036   

Transfer agent

      12,532          11,776          12,440   

Legal

      12,191          5,475          2,571   

New York Stock Exchange listing

      11,224          9,297          9,203   

Insurance

      8,434          6,356          3,431   

Miscellaneous

      5,531          5,187          5,082   

Total Expenses

      2,237,408          1,493,608          430,466   

Less: custody credits earned on cash balances

      (828)          (381)          (53)   

Net Expenses

      2,236,580          1,493,227          430,413   
     

Net Investment Income

      12,521,133          9,531,506          1,832,435   
     
Realized and Change in Unrealized Gain (Loss):                  

Net realized gain on investments

      863,469          228,554          118,954   

Net change in unrealized appreciation/depreciation of investments

      2,025,173          (910,228)          (930,201)   

Net realized and change in unrealized gain (loss)

      2,888,642          (681,674)          (811,247)   

Net Increase in Net Assets Resulting from Investment Operations

      15,409,775          8,849,832          1,021,188   

Dividends on Preferred Shares from Net Investment Income

      (211,972)          (148,686)          (38,736)   

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

      $15,197,803          $8,701,146          $982,452   

 

26   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       See accompanying Notes to Financial Statements


Table of Contents

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3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     27   


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, 2013
(unaudited)
        Year ended
September 30, 2012
 

Investment Operations:

           

Net investment income

      $12,521,133          $26,851,939   

Net realized gain (loss)

      863,469          (3,387,164)   

Net change in unrealized appreciation/depreciation

      2,025,173          47,169,941   

Net increase in net assets resulting from investment operations

      15,409,775          70,634,716   

Dividends on Preferred Shares from Net Investment Income

      (211,972)          (459,781)   

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

      15,197,803          70,174,935   

Dividends to Common Shareholders from Net Investment Income

      (13,618,853)          (27,184,685)   
   
Common Share Transactions:            

Reinvestment of dividends

      506,950          1,127,973   

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

      2,085,900          44,118,223   
   
Net Assets Applicable to Common Shareholders:            

Beginning of period

      357,138,940          313,020,717   

End of period*

      $359,224,840          $357,138,940   

*Including undistributed net investment income of:

      $2,507,853          $3,817,545   
   

Common Shares Issued in reinvestment of dividends

      41,347          101,480   

 

28   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       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, 2013
(unaudited)
      Year ended
September 30, 2012
        Six Months
ended
March 31, 2013
(unaudited)
        Year ended
September 30, 2012
 
                   
$9,531,506       $17,843,450          $1,832,435          $4,353,193   
228,554       (3,446,529)          118,954          (105,183)   
(910,228)       26,851,541          (930,201)          4,046,722   
8,849,832       41,248,462          1,021,188          8,294,732   
(148,686)       (303,346)          (38,736)          (78,584)   

8,701,146

      40,945,116          982,452          8,216,148   
(7,910,851)       (15,785,355)          (1,774,810)          (3,543,427)   
       
                   
433,731       687,943          58,134          164,219   
1,224,026       25,847,704          (734,224)          4,836,940   
       
                   
224,596,090       198,748,386          54,327,103          49,490,163   
$225,820,116       $224,596,090          $53,592,879          $54,327,103   
$7,332,537       $5,860,568          $1,954,377          $1,935,488   
       
39,684       70,417          5,716          17,760   

 

See accompanying Notes to Financial Statements       3.31.13       PIMCO Municipal Income Funds III Semi-Annual Report     29   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (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”) and Pacific Investment Management Company LLC (“PIMCO” or the “Sub-Adviser”) serve as the Funds’ investment manager and sub-adviser, respectively, and are indirect, wholly-owned subsidiaries of Allianz Asset Management of America L.P. (“AAM”). AAM is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has authorized an unlimited amount of common shares with $0.00001 par value.

Under normal market conditions, Municipal III invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from U.S. federal income taxes. Under normal market conditions, California Municipal 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 Funds’ financial statements in accordance with accounting principles generally accepted in the United States of America requires the Funds’ management to make estimates and assumptions that affect the reported amounts and disclosures in each Fund’s financial statements. Actual results could differ from those estimates.

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

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 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. Funds’ management is currently evaluating the effect that the guidance may have on the Funds’ 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. The Funds’ investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement date.

The Board of Trustees (the “Board”) has adopted procedures for valuing portfolio securities and other financial derivative instruments in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Investment Manager and Sub-Adviser. The Funds’ Valuation Committee was established by the Board to oversee the implementation of the Funds’ valuation methods and to make fair value

 

30   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

determinations on behalf of the Board, as instructed. The Sub-Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Sub-Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee.

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

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

(b) Fair Value Measurements

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

 

    Level 1 — quoted prices in active markets for identical investments that the Funds have the ability to access
    Level 2 — valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates or other market corroborated inputs
    Level 3 — valuations based on significant unobservable inputs (including the Sub-Adviser’s or Valuation Committee’s own assumptions and single broker quotes in determining the fair value of investments)

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

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

Municipal Bonds & Notes and Variable Rate Notes — Municipal bonds & notes and variable rate notes are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond or note insurance. To the extent that these inputs are observable, the values of municipal bonds & notes and variable rate notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

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

The Funds’ policy is to recognize transfers between levels at the end of the reporting period. An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to the fair value measurement. The objective of fair value measurement remains the same even when there is

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     31   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used. Investments categorized as Level 1 or 2 as of period end may have been transferred between Levels 1 and 2 since the prior period due to changes in the valuation method utilized in valuing the investments.

(c) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Securities purchased and sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on an identified cost basis. Interest income adjusted for the accretion of discount and amortization of premiums is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income.

(d) Federal Income Taxes

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

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

(e) Dividends and Distributions — Common Shares

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

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

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

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

 

32   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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) Repurchase Agreements

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

(h) When-Issued/Delayed-Delivery Transactions

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

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

Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly-owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors not backed by the full faith and credit of the U.S. Government include the Federal National Mortgage

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     33   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.

(j) Interest Expense

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

(k) Custody Credits on Cash Balances

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

2. Principal Risks

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

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

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

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

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

The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The potential loss to the Funds could exceed the value of the financial assets recorded in the Funds’ financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist principally of cash due from counterparties and investments. The Sub-Adviser seeks to minimize the Funds’

 

34   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

2. Principal Risks (continued)

 

counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

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

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

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

3. Investment Manager/Sub-Adviser

Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of each Fund’s Board, the Investment Manager is responsible for managing, either directly or through others selected by it, the Funds’ investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.65% of each Funds’ average daily net assets, inclusive of net assets attributable to any Preferred Shares that were outstanding.

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

4. Investments in Securities

For the six months ended March 31, 2013, purchases and sales of investments, other than short-term securities were:

 

     Municipal III     California
Municipal III
    New York
Municipal III
 

Purchases

  $ 42,382,529      $ 25,626,676      $ 9,893,674   

Sales

    38,233,482        17,045,021        8,001,432   

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     35   


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

5. Income Tax Information

 

At March 31, 2013, the aggregate cost basis and the net unrealized appreciation of investments for federal income tax purposes were:

 

     Federal Tax Cost
Basis
   

Unrealized

Appreciation

   

Unrealized

Depreciation

   

Net
Unrealized

Appreciation

 

Municipal III

  $ 482,246,800      $ 65,394,492      $ 5,105,422      $ 60,289,070   

California Municipal III

    313,387,619        41,423,066        549,642        40,873,424   

New York Municipal III

    79,811,277        8,057,271        235,450        7,821,821   

Differences between book and tax cost basis were attributable to Inverse Floaters transactions.

6. 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, 2013, the annualized dividend rates ranged from:

 

     High     Low     At
March 31, 2013
 

Municipal III:

                 

Series A

    0.320     0.131     0.197

Series B

    0.320     0.131     0.197

Series C

    0.320     0.131     0.197

Series D

    0.320     0.131     0.197

Series E

    0.320     0.144     0.197

California Municipal III:

                 

Series A

    0.320     0.147     0.197

Series B

    0.320     0.164     0.197

New York Municipal III:

                 

Series A

    0.320     0.164     0.197

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

 

36   PIMCO Municipal Income Funds III Semi-Annual Report     3.31.13


Table of Contents

PIMCO Municipal Income Funds III Notes to Financial Statements

March 31, 2013 (unaudited)

 

6. Auction-Rate Preferred Shares (continued)

 

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 S&P 7-day 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. In the Fall of 2012, S&P Evaluation Services has announced that it would discontinue providing the S&P Weekly High Grade Municipal Bond Index (formerly, the Kenny S&P 30-Day High Grade Municipal Bond Index) (the “Prior Index”) effective January 1, 2013. The Funds’ Boards approved the use of the Securities Industry and Financial Markets Associations (SIFMA) Municipal Swap Index in replacement of the Prior Index to calculate ARPS dividend rates on and after January 1, 2013, as well as corresponding amendments to the Funds’ bylaws.

7. Subsequent Events

In preparing these financial statements, the Fund’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

On April 1, 2013, the following dividends were declared to common shareholders payable May 1, 2013 to shareholders of record on April 11, 2013.

 

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, 2013, the following dividends were declared to common shareholders payable June 3, 2013 to shareholders of record on May 13, 2013.

 

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.

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     37   


Table of Contents

PIMCO Municipal Income Fund III Financial Highlights

For a common share outstanding throughout each period:

 

        Six Months
ended
March 31, 2013
(unaudited)
        Year ended September 30,  
              2012         2011         2010         2009         2008  

Net asset value, beginning of period

      $11.02          $9.69          $10.29          $10.16          $10.81          $14.53   
           

Investment Operations:

                                   

Net investment income

      0.39          0.83          0.87          0.86          0.96          1.29   

Net realized and change in unrealized gain (loss)

      0.09          1.35          (0.61       0.13          (0.67       (3.87

Total from investment operations

      0.48          2.18          0.26          0.99          0.29          (2.58
           

Dividends on Preferred Shares from Net Investment Income

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

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

      0.47          2.17          0.24          0.97          0.19          (2.88
           

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

      $11.07          $11.02          $9.69          $10.29          $10.16          $10.81   

Market price, end of period

      $12.33          $13.31          $10.75          $11.45          $11.29          $11.17   

Total Investment Return (1)

      (4.10 )%        33.20       2.01       9.90       11.02       (21.07 )% 

RATIOS/SUPPLEMENTAL DATA:

                                   

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

      $359,225          $357,139          $313,021          $330,840          $324,921          $342,926   

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

      1.23 %(6)        1.27 %(5)        1.44 %(5)        1.40 %(5)        1.92 %(5)        2.48 %(5) 

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

      1.17 %(6)        1.17 %(5)        1.28 %(5)        1.26 %(5)        1.44 %(5)        1.23 %(5) 

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

      6.91 %(6)        8.00 %(5)        9.39 %(5)        8.78 %(5)        11.23 %(5)        9.39 %(5) 

Preferred shares asset coverage per share

      $72,515          $72,239          $66,404          $68,760          $67,977          $56,709   

Portfolio turnover rate

      7       25       14       7       58       17

 

(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 and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period 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(k) 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 years indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.06%, 0.02%, 0.01%, 0.10% and 0.17% for the years ended September 30, 2012, September 30, 2011, September 30, 2010, September 30, 2009 and September 30, 2008, respectively.  

 

(6)   Annualized.  

 

38   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       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, 2013
(unaudited)
        Year ended September 30,  
              2012         2011         2010         2009         2008  

Net asset value, beginning of period

      $10.23          $9.08          $9.65          $9.55          $11.13          $14.48   
           

Investment Operations:

                                   

Net investment income

      0.44          0.81          0.77          0.76          0.88          1.15   

Net realized and change in unrealized gain (loss)

      (0.03       1.07          (0.60       0.08          (1.64       (3.49

Total from investment operations

      0.41          1.88          0.17          0.84          (0.76       (2.34
           

Dividends on Preferred Shares from Net Investment Income

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

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

      0.40          1.87          0.15          0.82          (0.86       (2.63
           

Dividends to Common Shareholders from Net Investment Income

      (0.36       (0.72       (0.72       (0.72       (0.72       (0.72

Net asset value, end of period

      $10.27          $10.23          $9.08          $9.65          $9.55          $11.13   

Market price, end of period

      $11.08          $11.68          $9.53          $10.39          $10.03          $10.54   

Total Investment Return (1)

      (1.94 )%        31.62       (0.47 )%        11.94       3.95       (21.60 )% 

RATIOS/SUPPLEMENTAL DATA:

                                   

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

      $225,820          $224,596          $198,748          $210,317          $207,173          $240,436   

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

      1.32 %(6)        1.34 %(5)        1.48 %(5)        1.45 %(5)        1.77 %(5)        2.75 %(5) 

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

      1.22 %(6)        1.20 %(5)        1.32 %(5)        1.31 %(5)        1.48 %(5)        1.21 %(5) 

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

      8.40 %(6)        8.40 %(5)        9.01 %(5)        8.39 %(5)        10.82 %(5)        8.53 %(5) 

Preferred shares asset coverage per share

      $70,162          $69,918          $64,749          $67,061          $66,432          $57,426   

Portfolio turnover rate

      4       10       11       3       48       8

 

(1)   Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period 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(k) 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 years indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.06%, 0.02%, 0.01%, 0.10% and 0.17% for the years ended September 30, 2012, September 30, 2011, September 30, 2010, September 30, 2009 and September 30, 2008, respectively.  

 

(6)   Annualized.  

 

See accompanying Notes to Financial Statements       3.31.13       PIMCO Municipal Income Funds III Semi-Annual Report     39   


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, 2013
(unaudited)
        Year ended September 30,  
              2012         2011         2010         2009         2008  

Net asset value, beginning of period

      $9.65          $8.82          $9.38          $9.10          $11.45          $14.57   
           

Investment Operations:

                                   

Net investment income

      0.33          0.77          0.69          0.66          0.78          1.11   

Net realized and change in unrealized gain (loss)

      (0.14       0.70          (0.60       0.27          (2.40       (3.30

Total from investment operations

      0.19          1.47          0.09          0.93          (1.62       (2.19
           

Dividends on Preferred Shares from Net Investment Income

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

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

      0.18          1.46          0.07          0.91          (1.72       (2.49
           

Dividends to Common Shareholders from Net Investment Income

      (0.32       (0.63       (0.63       (0.63       (0.63       (0.63

Net asset value, end of period

      $9.51          $9.65          $8.82          $9.38          $9.10          $11.45   

Market price, end of period

      $10.14          $10.66          $9.00          $9.81          $9.65          $10.00   

Total Investment Return (1)

      (1.87 )%        26.56       (1.27 )%        8.98       4.19       (22.55 )% 

RATIOS/SUPPLEMENTAL DATA:

                                   

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

      $53,593          $54,327          $49,490          $52,400          $50,528          $63,151   

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

      1.58 %(6)        1.64 %(5)        1.73 %(5)        1.66 %(5)        2.30 %(5)        3.02 %(5) 

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

      1.47 %(6)        1.50 %(5)        1.58 %(5)        1.56 %(5)        1.74 %(5)        1.34 %(5) 

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

      6.73 %(6)        8.42 %(5)        8.07 %(5)        7.39 %(5)        9.42 %(5)        8.04 %(5) 

Preferred shares asset coverage per share

      $66,868          $67,441          $63,663          $65,936          $64,474          $58,583   

Portfolio turnover rate

      9       16       9       12       33       7

 

(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 and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period 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(k) 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 years indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.06%, 0.02%, 0.01%, 0.10% and 0.17% for the years ended September 30, 2012, September 30, 2011, September 30, 2010, September 30, 2009 and September 30, 2008, respectively.  

 

(6)   Annualized.  

 

40   PIMCO Municipal Income Funds III Semi-Annual Report       3.31.13       See accompanying Notes to Financial Statements


Table of Contents

PIMCO Municipal Income Funds III

Annual Shareholder Meeting Results/Proxy Voting

Policies & Procedures (unaudited)

 

Annual Shareholder Meeting Results:

The Funds held their joint annual meetings of shareholders on December 19, 2012. Common/Preferred shareholders voted as indicated below:

 

     Affirmative     Withheld Authority  

Municipal III

           

Re-election of Hans W. Kertess — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    27,799,497        939,216   

Re-election of William B. Ogden, IV — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    27,774,029        964,684   

Re-election of Alan Rappaport* — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    5,939        99   

California Municipal III

           

Re-election of Hans W. Kertess — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    17,206,487        596,964   

Re-election of William B. Ogden, IV — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    17,243,283        533,168   

Re-election of Alan Rappaport* — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    3,608        173   

New York Municipal III

           

Re-election of Hans W. Kertess — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    4,315,551        298,730   

Re-election of William B. Ogden, IV — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    4,315,551        298,730   

Re-election of Alan Rappaport* — Class I to serve until the annual meeting for the 2015-2016 fiscal year

    1,149          

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. Bradford K. Gallagher, James A. Jacobson*, and John C. Maney, continued to serve as Trustees.

 

*   Preferred Shares Trustee  
  Interested Trustee  

 

 

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 us.allianzgi.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at www.sec.gov.

 

3.31.13     PIMCO Municipal Income Funds III Semi-Annual Report     41   


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.

225 Franklin Street

Boston, MA 02110

Transfer Agent, Dividend Paying Agent and Registrar

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

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 us.allianzgi.com/closedendfunds.

Information on the Funds is available at us.allianzgi.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 us.allianzgi.com/edelivery.

 

AZ606SA_033113

 

Allianz Global Investors Distributors LLC

 

AGI-2013-04-03-6447


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

 

Brian S. Shlissel,

President & Chief Executive Officer

Date: May 29, 2013
By  

/s/ Lawrence G. Altadonna

 

Lawrence G. Altadonna,

Treasurer, Principal Financial & Accounting Officer

Date: May 29, 2013

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

 

Brian S. Shlissel,

President and Chief Executive Officer

Date: May 29, 2013
By  

/s/ Lawrence G. Altadonna

  Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: May 29, 2013