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 811-21187
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PIMCO Municipal Income Fund III
-------------------------------
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
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(Address of principal executive offices) (Zip code)
Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105
-----------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-739-3371
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Date of fiscal year end: September 30
------------
Date of reporting period: September 30
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. Report to Shareholder
ANNUAL REPORT
9.30.04
PIMCO MUNICIPAL INCOME FUND III
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III
PIMCO NEW YORK MUNICIPAL INCOME FUND III
- --------------------------------------------------------------------------------
PMX CONTENTS
LISTED
NYSE Letter to Shareholders..........................1
THE NEW YORK STOCK EXCHANGE
Performance and Statistics....................2-4
Schedules of Investments.....................5-22
PZC Statements of Assets and Liabilities...........23
LISTED
NYSE Statements of Operations.......................24
THE NEW YORK STOCK EXCHANGE
Statements of Changes in Net Assets.........26-27
Notes to Financial Statements...............28-35
Financial Highlights........................36-38
PYN Report of Independent Registered Public
LISTED Accounting Firm................................39
NYSE
THE NEW YORK STOCK EXCHANGE Privacy Policy, Proxy Voting Policies
and Procedures.................................40
Other Information..............................41
Tax Information................................42
Dividend Reinvestment Plan.....................43
Board of Trustees..............................44
[PIMCO ADVISORS LOGO]
PIMCO MUNICIPAL INCOME FUNDS III LETTER TO SHAREHOLDERS
November 15, 2004
Dear Shareholder:
I am pleased to provide you with the annual report for PIMCO Municipal Income
Fund III, PIMCO California Municipal Income Fund III and PIMCO New York
Municipal Income Fund III ("PIMCO Municipal Income Funds III" or the "Funds")
for the year ended September 30, 2004.
Please refer to the following pages for specific information for each of the
PIMCO Municipal Income III Funds. If you have any questions regarding the
information provided, please contact your financial advisor or call our
shareholder services area at 1-800-331-1710. Please note that a wide range of
information and resources can be accessed through our web
site--www.pimcoadvisors.com.
Together with PA Fund Management LLC, the Funds' investment manager and Pacific
Investment Management Co. LLC, the Funds' sub-adviser, I thank you for investing
with us. We remain dedicated to serving your investment needs.
Sincerely,
/s/ Brian S. Shlissel
Brian S. Shlissel
President & Chief Executive Officer
9.30.04 PIMCO Municipal Income Funds III Annual Report 1
PIMCO MUNICIPAL INCOME FUND III PERFORMANCE AND STATISTICS
September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PMX Municipal fixed-income October 31, 2002
securities, the interest from
OBJECTIVE: which is exempt from federal TOTAL NET ASSETS(1):
To provide income exempt income tax. $715.7 million
from federal income tax.
PORTFOLIO MANAGER:
Mark McCray
TOTAL RETURN(2): MARKET PRICE NET ASSET VALUE
- --------------------------------------------------------------------------------
1 Year 8.10% 9.59%
Commencement of Operations (10/31/02) to 9/30/04 4.17% 6.86%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (10/31/02) to 9/30/04
o Market Price
o Net Asset Value
MARKET PRICE/NET ASSET VALUE:
- ----------------------------------------------------
Market Price $14.30
- ----------------------------------------------------
Net Asset Value $14.36
- ----------------------------------------------------
Discount to Net Asset Value 0.42%
- ----------------------------------------------------
Market Price Yield(3) 6.97%
- ----------------------------------------------------
[LINE CHART OMITTED]
10/31/02 14.33 15
14.36 15
14.35 15
14.26 15
14.23 15
14.35 14.9
14.38 14.16
14.33 14.14
14.3 14.02
14.28 14.39
14.205 14.37
14.269 14.55
14.241 14.45
14.241 14.2
14.29 14.38
14.35 14.55
14.4 14.28
14.46 14.11
14.57 14.16
14.58 14.36
14.24 14.3
14.31 14.24
14.01 14.09
14.08 14.12
14.26 14.29
14.25 14.19
14.29 14.29
14.46 14.65
14.65 14.55
14.78 14.69
14.76 14.66
14.79 14.88
14.95 14.91
14.71 14.91
14.55 14.8
14.53 14.84
14.51 14.71
14.23 14.43
13.91 14.03
13.26 13.9
13.59 13.96
13.22 13.69
13.34 13.72
13.43 13.69
13.6 13.87
13.64 13.76
13.9 13.77
13.96 14.03
14.05 14.2
13.9 14.15
13.78 13.77
13.77 13.69
14.02 13.86
14.08 13.82
14.11 13.85
14.24 13.86
14.36 13.81
14.47 13.72
14.38 13.85
14.44 13.86
14.52 14.05
14.53 13.95
14.65 13.98
14.83 14.39
14.75 14.45
14.75 14.44
14.67 14.41
14.8 14.61
14.84 14.66
14.89 14.44
14.82 14.5
14.83 14.6
14.77 14.66
14.7 14.63
14.54 14.67
14.41 14.55
14.54 14.02
14.44 13.9
14.39 13.63
14.27 13.41
14.05 13.06
13.78 12.94
13.84 12.91
14.01 13.27
13.94 13.31
13.76 13
13.85 13.02
13.89 13.16
14.14 13.6
14.22 13.83
14.06 13.75
14.11 13.56
14.11 13.83
14.25 14.1
14.19 13.94
14.25 14.07
14.3 14.19
14.35 14.24
14.27 14.18
14.31 14.21
14.41 14.35
9/30/04 14.36 14.3
[PIE CHART OMITTED]
MOODY'S RATINGS
(AS A % OF TOTAL INVESTMENTS)
Aaa 43.3%
Aa 13.1%
A 13.3%
Baa 16.2%
Ba 1.0%
B 0.7%
VMIG1 2.5%
NR 10.0%
(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
determined by subtracting the initial investment from the value at the end
of the period and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all of
the Fund's income dividends have been reinvested at prices obtained under
the dividend reinvestment plan. Total return does not reflect broker
commissions or sales charges. Total return for a period of more than one
year represents the average annual total return.
An investment in the Fund involves risk, including the loss of principal.
Total return, price, yield and net asset value will fluctuate with changes
in market conditions. This data is provided for information only and is not
intended for trading purposes. A portion of the income generated by the
Fund may be subject to federal, state and local taxes, and may at times be
subject to the alternative minimum tax. 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 sold in the open market
through a stock exchange. Net asset value is total assets applicable to
common shareholders less total liabilities divided by the number of common
shares outstanding. Holdings are subject to change daily.
(3) Market Price Yield is determined by dividing the annualized current monthly
per share dividend to common shareholders by the market price per common
share at September 30, 2004.
2 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III PERFORMANCE AND STATISTICS
September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PZC Municipal fixed-income October 31, 2002
securities, the interest
OBJECTIVE: from which is exempt from TOTAL NET ASSETS(1):
To provide current income federal and California $485.9 million
exempt from federal and state income tax.
California state income tax. PORTFOLIO MANAGER:
Mark McCray
TOTAL RETURN(2): MARKET PRICE NET ASSET VALUE
- --------------------------------------------------------------------------------
1 Year 8.22% 12.66%
Commencement of Operations (10/31/02) to 9/30/04 1.96% 5.84%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (10/31/02) to 9/30/04
o Market Price
o Net Asset Value
MARKET PRICE/NET ASSET VALUE:
- ----------------------------------------------------
Market Price $13.74
- ----------------------------------------------------
Net Asset Value $14.12
- ----------------------------------------------------
Discount to Net Asset Value 2.69%
- ----------------------------------------------------
Market Price Yield(3) 6.99%
- ----------------------------------------------------
[LINE CHART OMITTED]
10/31/02 14.33 15
14.3 15
14.34 15.01
14.31 15
14.29 15
14.29 15
14.32 14.91
14.33 14.15
14.25 14.05
14.19 14
14.17 14.2
14.12 14.1
14.1 13.97
14.04 13.96
14.04 13.77
14.07 14.15
14.1 14.05
14.14 13.7
14.18 14
14.27 14.5
14.3 14.3
13.93 14.19
14.08 14.01
13.73 14.04
13.77 13.99
13.96 13.99
13.95 14.11
14.01 14.12
14.18 14.35
14.39 14.3
14.58 14.64
14.55 14.6
14.59 14.66
14.74 14.75
14.39 14.78
14.18 14.65
14.11 14.47
14.1 14.36
13.76 14.06
13.35 13.5
12.84 12.88
13.03 13.6
12.73 13.35
12.79 13.36
12.82 13.43
13.01 13.49
13.03 13.95
13.3 13.62
13.39 13.7
13.43 13.62
13.19 13.45
13.26 13.21
13.46 13.32
13.54 13.54
13.58 13.74
13.8 13.52
14 13.38
14.09 13.4
13.98 13.54
14.05 13.43
14.17 13.47
14.18 13.5
14.28 13.55
14.49 13.76
14.41 13.83
14.39 13.96
14.28 13.83
14.42 14.1
14.47 14.03
14.54 13.97
14.48 13.98
14.54 14.2
14.49 14.2
14.42 14.12
14.2 14.18
14.1 14.01
14.22 13.48
14.03 13.3
14.02 13.08
13.86 12.87
13.64 12.78
13.32 12.62
13.34 12.75
13.55 12.9
13.44 13.12
13.27 12.97
13.39 12.89
13.48 12.83
13.72 13.28
13.81 13.3
13.7 13.45
13.75 13.74
13.71 13.64
14.01 13.83
13.91 13.64
13.98 13.74
14.06 13.84
14.09 13.88
14.04 13.92
14.08 14.07
14.19 14.08
9/30/04 14.12 13.74
[PIE CHART OMITTED]
MOODY'S RATINGS
(AS A % OF TOTAL INVESTMENTS)
Aaa 33.7%
Aa 2.8%
A 10.7%
Baa 17.5%
VMIG1 0.8%
NR 34.5%
(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
determined by subtracting the initial investment from the value at the end
of the period and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all of
the Fund's income dividends have been reinvested at prices obtained under
the dividend reinvestment plan. Total return does not reflect broker
commissions or sales charges. Total return for a period of more than one
year represents the average annual total return.
An investment in the Fund involves risk, including the loss of principal.
Total return, price, yield and net asset value will fluctuate with changes
in market conditions. This data is provided for information only and is not
intended for trading purposes. A portion of the income generated by the
Fund may be subject to federal, state and local taxes, and may at times be
subject to the alternative minimum tax. 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 sold in the open market
through a stock exchange. Net asset value is total assets applicable to
common shareholders less total liabilities divided by the number of common
shares outstanding. Holdings are subject to change daily.
(3) Market price yield is determined by dividing the annualized current monthly
per share dividend payable to common shareholders by the market price per
common share at September 30, 2004.
9.30.04 PIMCO Municipal Income Funds III Annual Report 3
PIMCO NEW YORK MUNICIPAL INCOME FUND III PERFORMANCE AND STATISTICS
September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PYN October 31, 2002
Municipal fixed-income
OBJECTIVE: securities, the interest TOTAL NET ASSETS(1):
To provide current income from which is exempt from $125.5 million
exempt from federal, federal, New York state
New York state and New York and New York City income PORTFOLIO MANAGER:
City income tax. tax. Mark McCray
TOTAL RETURN(2): MARKET PRICE NAV
- --------------------------------------------------------------------------------
1 Year 11.93% 8.95%
Commencement of Operations (10/31/02) to 9/30/04 3.95% 6.78%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (10/31/02) to 9/30/04
o at Market Price
o at Net Asset Value
NET ASSET VALUE/MARKET PRICE:
- ----------------------------------------------------
Market Price $14.30
- ----------------------------------------------------
Net Asset Value $14.41
- ----------------------------------------------------
Discount to Net Asset Value 0.76%
- ----------------------------------------------------
Market Price Yield(3) 6.71%
- ----------------------------------------------------
[LINE CHART OMITTED]
10/31/02 14.33 15
14.29 15
14.3 15
14.3 15.02
14.25 15
14.24 15
14.29 14.91
14.32 14.66
14.22 14.1
14.18 13.95
14.17 13.95
14.119 14.05
14.15 14.05
14.1 13.99
14.1 13.82
14.13 13.85
14.16 13.95
14.19 13.79
14.23 13.9
14.29 14.14
14.33 14.09
13.93 13.86
14.08 13.71
14.06 13.84
14.1 13.99
14.17 13.97
14.24 14.15
14.3 14.3
14.56 14.46
14.78 14.47
14.84 14.4
14.81 14.28
14.84 14.66
15.07 14.95
14.77 14.93
14.62 14.76
14.59 14.7
14.56 14.74
14.2 14.47
13.98 14.16
13.06 13.76
13.65 13.81
13.28 13.53
13.41 13.7
13.56 13.75
13.8 13.81
13.77 13.75
14.01 13.52
14.11 13.63
14.14 13.68
13.93 13.7
13.91 13.68
14.17 13.67
14.23 13.79
14.32 13.92
14.43 13.87
14.52 13.74
14.67 13.8
14.56 14
14.61 13.87
14.65 13.88
14.66 13.89
14.82 13.92
14.95 14.21
14.85 14.26
14.88 14.47
14.79 14.47
14.91 14.75
14.96 14.49
15.02 14.53
14.95 14.64
14.92 14.8
14.86 14.7
14.8 14.78
14.65 14.68
14.53 14.41
14.68 14.07
14.58 13.76
14.5 13.45
14.39 13.32
14.16 13.09
13.83 12.54
13.78 12.67
13.98 13.16
13.88 13.25
13.66 12.98
13.8 12.85
13.84 12.93
14.11 13.22
14.17 13.39
14.02 13.45
14.09 13.31
14.1 13.53
14.25 13.9
14.22 13.9
14.29 14.19
14.35 14.25
14.41 14.25
14.34 14.17
14.38 14.44
14.45 14.3
9/30/04 14.41 14.3
[PIE CHART OMITTED]
Aaa 31.2%
Aa 8.4%
A 17.2%
Baa 22.6%
VMIG1 0.6%
NR 20.0%
(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
determined by subtracting the initial investment from the value at the end
of the period and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all of
the Fund's income dividends have been reinvested at prices obtained under
the dividend reinvestment plan. Total return does not reflect broker
commissions or sales charges. Total return for a period of more than one
year represents the average annual return.
An investment in the Fund involves risk, including the loss of principal.
Total return, price, yield and net asset value will fluctuate with changes
in market conditions. This data is provided for information only and is not
intended for trading purposes. A portion of the income generated by the
Fund may be subject to federal, state and local taxes, and may at times be
subject to the alternative minimum tax. 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 sold in the open market
through a stock exchange. Net asset value is total assets applicable to
common shareholders less total liabilities divided by the number of common
shares outstanding. Holdings are subject to change daily.
(3) Market price yield is determined by dividing the annualized current per
monthly share dividend payable to common shareholders by the market price
per common share at September 30, 2004.
4 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES--90.0%
ALABAMA--0.7%
$ 3,560 Birmingham, GO, 5.00%, 12/1/27-12/1/32, Ser. B (AMBAC) Aaa/AAA $ 3,628,592
1,500 Colbert Cnty., Northwest Health Care Auth., Health Care Facs.
5.75%, 6/1/27 Baa3/NR 1,468,275
-----------
5,096,867
-----------
ALASKA--0.7%
State Housing Finance Corp.,
3,900 5.00%, 12/1/33, Ser.A Aaa/AAA 3,930,615
1,000 5.25%, 6/1/32 Ser C. (MBIA) Aaa/AAA 1,014,100
-----------
4,944,715
-----------
ARIZONA--0.6%
2,200 Health Facs. Auth. Hospital Syst. Rev., 7.00%, 12/1/25 NR/BBB 2,392,016
1,500 Maricopa Cnty. Pollution Control Corp., Pollution Control Rev.,
5.05%, 5/1/29 (AMBAC) Aaa/AAA 1,541,985
-----------
3,934,001
-----------
CALIFORNIA--6.7%
1,000 Alameda Public Financing Auth. Rev., 7.00%, 6/1/09 NR/NR 1,006,560
48,585 Golden State Tobacco Securitization Corp., Tobacco Settlement
Rev., 6.25%-6.75%, 6/1/33-6/1/39, Ser. 2003-A-1 Baa3/BBB 46,400,020
-----------
47,406,580
-----------
COLORADO--4.2%
El Paso Cnty., CP,
4,555 5.00%, 12/1/23-12/1/27, Ser. A (AMBAC) Aaa/AAA 4,707,245
3,225 5.00%, 12/1/23-12/1/27, Ser. B (AMBAC) Aaa/AAA 3,343,096
1,500 Garfield Cnty. School Dist. Re-2, GO, 5.00%, 12/1/25 (FSA) Aaa/NR 1,551,675
3,000 La Plata Cnty. School Dist. No. 9-R, Durango, GO,
5.25%, 11/1/23-11/1/25 (MBIA) Aaa/NR 3,196,110
4,000 Saddle Rock Met. Dist., GO, 5.35%, 12/1/31 (Radian) NR/AA 4,080,640
2,500 School Mines Auxilary Facs. Rev., 5.00%, 12/1/37 (AMBAC) Aaa/AAA 2,536,625
9,955 Springs Utilities Rev., 5.00%, 11/15/30, Ser. B Aa2/AA 10,147,231
-----------
29,562,622
-----------
FLORIDA--6.4%
8,000 Highlands Cnty., Health Facs. Auth., Rev., 5.25%, 11/15/23, Ser. B A2/A 8,163,680
2,500 Hillsborough Cnty. Industrial Dev. Auth. Hospital Rev., 5.25%,
10/1/34, Ser. B Baa1/NR 2,496,225
1,485 Julington Creek Plantation Community Dev. Dist., Assessment
Rev., 5.00%, 5/1/29 (MBIA) Aaa/AAA 1,520,298
1,000 Orange Cnty., Housing Finance Auth. Multifamily Rev.,
5.25%, 1/1/28, Ser. G (FNMA) Aaa/NR 1,028,190
15,000 Pinellas Cnty., Health Facs. Auth. Rev., 5.50%, 11/15/33 A1/NR 15,529,350
7,500 South Miami Health Facs. Auth. Hospital Rev., 5.25%, 11/15/33 Aa3/AA- 7,656,525
2,500 State Board Public Education, GO, 5.00%, 6/1/13 (MBIA) Aaa/AAA 2,787,725
9.30.04 PIMCO Municipal Income Funds III Annual Report 5
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 5,615 Tampa, Water & Sewer Rev., 5.00%, 10/1/26, Ser. A Aa2/AA $ 5,794,006
-----------
44,975,999
-----------
GEORGIA--1.0%
4,000 Griffin Combined Public Utility Rev., 5.00%, 1/1/32 (AMBAC) Aaa/AAA 4,083,320
2,805 State GO, 5.50%, 7/1/13, Ser. C Aaa/AAA 3,251,556
-----------
7,334,876
-----------
IDAHO--1.0%
6,750 State Building Auth. Building Rev., 5.00%, 9/1/33-9/1/43, Ser. A
(XLCA) Aaa/AAA 6,900,465
-----------
ILLINOIS--8.6%
2,250 Chicago, GO, 5.00%, 1/1/31, Ser. A (MBIA) Aaa/AAA 2,286,720
Chicago Board of Education, GO,
500 zero coupon, 12/1/28, Ser. A (FGIC) Aaa/AAA 137,710
5,000 5.00%, 12/1/31, Ser. C (FSA) Aaa/AAA 5,080,850
3,000 Chicago Kingsbury Redev. Project Tax Allocation, 6.57%, 2/15/13,
Ser. A NR/NR 3,149,250
7,000 Chicago Motor Fuel Tax Rev., 5.00% 1/1/33, Ser. A (AMBAC) Aaa/AAA 7,123,480
4,000 Chicago Park Dist., GO, 5.00%, 1/1/29, Ser. D (FGIC) Aaa/AAA 4,068,320
5,056 Chicago, Special Assessment, 6.625%-6.75%, 12/1/22-12/1/32 NR/NR 5,256,945
2,500 Chicago Water Rev., 5.00% 11/1/31 (AMBAC) Aaa/AAA 2,794,475
2,500 Cook Cnty., GO, 5.125%, 11/15/26, Ser.A (FGIC) Aaa/AAA 2,582,600
9,325 Educational Facs. Auth. Rev., 5.00%-5.25%, 7/1/33-7/1/41, Ser. A Aa1/AA 9,540,068
9,045 Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
5.25%, 6/15/42 (MBIA) Aaa/AAA 9,402,639
4,300 Round Lake, Special Tax Rev., 6.70%, 3/1/33 NR/NR 4,496,295
1,175 State Health Facs. Auth. Rev., 5.50%, 1/1/22 A2/NR 1,220,613
3,050 University, Rev., 5.00%, 4/1/30, Ser. A (AMBAC) Aaa/AAA 3,097,245
-----------
60,237,210
-----------
INDIANA--3.9%
7,535 Bond Bank, 5.00%, 2/1/33, Ser. A (FSA) Aaa/AAA 7,647,271
3,000 Brownsburg, 1999 School Building Corp., 5.25% 3/15/25, Ser. A
(FSA) Aaa/AAA 3,189,090
1,375 Fort Wayne Pollution Control Rev., 6.20%, 10/15/25 Baa1/BBB 1,455,561
5,000 Indianapolis Local Public Improvement Board, Tax Allocation,
5.00%, 2/1/29, Ser. G (MBIA) Aaa/AAA 5,088,200
4,500 Michigan City Area Wide School Building Corp. Rev.,
zero coupon, 1/15/21-1/15/22 (FGIC) Aaa/AAA 2,020,555
1,000 Plainfield Parks Facs. Corp. Lease Rent Rev., 5.00%, 1/15/22
(AMBAC) Aaa/AAA 1,049,700
3,500 State Dev. Finance Auth. Pollution Control Rev., 5.00%, 3/1/30
(AMBAC) Aaa/AAA 3,509,870
3,455 Valparaiso, Middle Schools Building Corp. Rev., 5.00%, 7/15/24
(MBIA) Aaa/AAA 3,585,150
-----------
27,545,397
-----------
6 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
IOWA--0.1%
$ 1,000 Tobacco Settlement Auth., Tobacco Settlement Rev., 5.60%,
6/1/35, Ser. B Baa3/BBB $ 812,460
-----------
KENTUCKY--0.9%
4,805 Dev. Finance Auth. Hospital Rev., 6.00%, 10/1/19 A3/A 5,393,516
1,000 Economic Dev. Finance Auth. Hospital Facs. Rev., 5.25%, 10/1/30 A1/AA- 1,022,240
-----------
6,415,756
-----------
LOUISIANA--0.9%
5,000 Public Facs. Auth. Rev., 5.50%, 5/15/32, Ser. B A3/NR 5,123,700
1,595 Tobacco Settlement Financing Corp., Rev., 5.875%, 5/15/39,
Ser. 2001B Baa3/BBB 1,362,210
-----------
6,485,910
-----------
MARYLAND--0.2%
1,500 State Health & Higher Eduational Facs. Auth. Rev., 5.50%, 7/1/36 A2/NR 1,545,480
-----------
MASSACHUSETTS--3.5%
1,000 State Dev. Finance Agcy. Rev., 5.75%, 7/1/33 NR/BBB 1,028,430
7,000 State Health & Educational Facs. Auth. Rev., 5.125%, 7/15/37,
Ser FF Aaa/AAA 7,274,610
4,910 State Housing Finance Agcy., Housing Rev., 5.125%, 6/1/43,
Ser. H Aa3/AA- 4,999,411
3,225 State Water Pollution Abatement Trust, 5.00%, 8/1/32, Ser. 8 Aaa/AAA 3,289,629
7,555 State Water Resources Auth., 5.00%, 8/1/32, Ser. J (FSA) Aaa/AAA 7,736,169
-----------
24,328,249
-----------
MICHIGAN--7.1%
12,240 Detroit Water Supply Syst., 5.00%, 7/1/34, Ser. B (MBIA) Aaa/AAA 12,491,042
5,000 State Building Auth. Rev., 5.00%, 10/15/26, Ser. III (FSA) Aaa/AAA 5,136,300
175 State Hospital Finance Auth. Rev., Detroit Medical Center,
5.25%, 8/15/23 Ba3/B 135,431
4,000 State Hospital Finance Auth. Rev., Henry Ford Health Syst.,
5.00%, 3/1/17 A1/A- 4,127,200
5,980 State Hospital Finance Auth. Rev., Oakwood Group, Ser. A,
5.75%-6.00%, 4/1/22-4/1/32 A2/A 6,227,854
20,000 State Hospital Finance Auth. Rev., Trinity Health Credit,
5.375%, 12/1//30 Aa3/AA- 20,658,200
1,000 Technological University, 5.00%, 10/1/33 (XLCA) Aaa/AAA 1,015,200
-----------
49,791,227
-----------
MINNESOTA--0.3%
2,400 Upsala Independent School Dist. No. 487, GO,
5.00%, 2/1/28 (FGIC) Aaa/Aaa 2,452,272
-----------
MISSISSIPPI--0.6%
4,250 Business Finance Corp., Pollution Control Rev.,
5.875%-5.90%, 4/1/22-5/1/22 Ba1/BBB 4,281,302
-----------
9.30.04 PIMCO Municipal Income Funds III Annual Report 7
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
MISSOURI--3.0%
$ 4,000 Bi-State Dev. Agcy., Missouri Illinois Met. Dist., 5.00%, 10/1/32
(FSA) Aaa/AAA $ 4,095,960
4,365 State Environmental Improvement & Energy Resources Auth.,
Water Pollution Control Rev., 5.00%, 7/1/23, Ser. B Aaa/NR 4,574,826
7,500 State Health & Educational Facs. Auth., Health Facs. Rev.,
6.25%, 12/1/30 A2/A 7,992,900
1,350 St. Louis Cnty. Industrial Dev. Auth., Housing Dev. Rev.,
5.20%, 1/20/36 (GNMA) NR/AAA 1,381,860
3,000 St. Louis Industrial Dev. Auth. Rev., 5.125%,
12/20/29-12/20/30 (GNMA) NR/AAA 3,073,485
-----------
21,119,031
-----------
MONTANA--1.6%
11,250 Forsyth Pollution Control Rev., 5.00%, 3/1/31 (AMBAC) Aaa/AAA 11,469,375
-----------
NEVADA--0.6%
3,355 Henderson Health Care Fac. Rev., 5.125%, 7/1/28 Baa1/BBB+ 3,206,172
1,000 Henderson Local Improvement Dist., Special Assessment,
5.80%, 3/1/23 NR/NR 1,023,480
-----------
4,229,652
-----------
NEW HAMPSHIRE--0.7%
4,750 Manchester Water Works, 5.00%, 12/1/28-12/1/34 (FGIC) Aaa/AAA 4,850,833
-----------
NEW JERSEY--4.3%
1,540 Camden Cnty., Improvement Auth. Rev., 6.00%, 2/15/27 Baa3/BBB 1,558,080
2,500 Middlesex Cnty., Pollution Control Auth. Rev., 5.75%, 9/15/32 Ba1/BBB- 2,583,550
4,500 Economic Dev. Auth. Economic Dev. Rev., 6.50%, 4/1/28 Baa3/NR 5,128,245
300 Economic Dev. Auth. Industrial Dev. Rev., 7.00%, 10/1/14 Ba3/NR 308,937
3,000 Health Care Facs. Financing Auth. Rev., Pascack Valley Hospital,
6.625%, 7/1/36 NR/B+ 2,824,380
2,000 Health Care Facs. Financing Auth. Rev., Somerset Medical Center,
5.50%, 7/1/33 Baa2/NR 1,988,380
2,000 South Port Corp., Rev., 5.10%, 1/1/33, Ser. K. NR/A- 2,033,200
1,500 State Educational Facs. Auth. Rev., 6.00%, 7/1/25, Ser. D NR/NR 1,591,935
12,855 Tobacco Settlement Financing Corp., Rev., 6.00%-6.75%,
6/1/24-6/1/43. Baa3/BBB 12,258,653
-----------
30,275,360
-----------
NEW MEXICO--0.1%
1,000 Farmington Pollution Control Rev., 5.80%, 4/1/22 Baa2/BBB 1,015,090
-----------
NEW YORK--5.5%
10,000 Metropolitan Transportation Auth. Rev.,
5.25%, 11/15/32, Ser. B A2/A 10,388,300
New York City Muni. Water Fin. Auth., Water & Sewer
Syst. Rev.,
5,000 5.00%, 6/15/35, Ser. C Aa2/AA+ 5,084,200
1,500 5.00%, 6/15/39, Ser. A Aa2/AA+ 1,520,610
8 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$ 3,800 State Dorm Auth. Rev., 5.00%, 3/15/32 A1/AA $ 3,846,892
11,590 State Dorm Auth. Rev., Memorial Sloan-Kettering Center,
5.00%, 7/1/34, Ser. 1 Aa2/AA 11,786,103
4,000 State Dorm Auth. Rev., St. Barnabas, 5.125%, 2/1/22,
Ser. A (FHA) Aaa/AAA 4,252,520
2,000 State Environmental Facs. Corp. Clean Water & Drinking Rev.,
5.00%, 6/15/28 Aaa/AAA 2,058,100
-----------
38,936,725
-----------
NORTH CAROLINA--1.7%
2,000 Charlotte-Mecklenberg Hospital Auth., Healthcare Syst. Rev.,
5.00%, 1/15/33, Ser. A Aa3/AA 2,029,640
Eastern Municipal Power Agcy., Power Syst. Rev.,
4,000 5.125%, 1/1/23-1/1/26, Ser. D Baa2/BBB 4,034,560
3,795 5.375%, 1/1/17, Ser. C Baa2/BBB 4,058,942
1,500 Medical Care Commission, Health Care Facs. Rev., 5.00%, 7/1/35
(AMBAC) Aaa/AAA 1,525,350
-----------
11,648,492
-----------
OHIO--0.4%
2,500 Lorian Cnty. Hospital Rev., 5.375%, 10/1/30 A1/AA- 2,551,200
-----------
PENNSYLVANIA--3.5%
4,350 Allegheny Cnty. Hospital Dev. Auth. Rev., 9.25%, 11/15/30, Ser. B B2/B 5,005,197
1,500 Cumberland Cnty. Muni. Auth. Retirement Community Rev.,
7.25%, 1/1/35, Ser. A NR/NR 1,539,315
3,250 Delaware River Joint Toll Bridge, Commission Bridge Rev.,
5.00%, 7/1/28 A2/A- 3,281,850
3,000 Lehigh Cnty. General Purpose Auth. Rev., 5.375% 8/15/33 Baa2/BBB 2,975,880
5,000 Philadelphia School Dist., GO, 5.125%, 6/1/34, Ser. D (FGIC) Aaa/AAA 5,131,850
6,300 St. Mary Hospital Auth., Bucks Cnty., 5.00%, 12/1/28
(Partially pre-refunded @ 101 6/1/08) (a) Aa2/AA 6,453,783
-----------
24,387,875
-----------
PUERTO RICO--0.3%
2,200 Electric Power Auth. Power Rev., 5.125%, 7/1/29, Ser. NN A3/A- 2,264,636
-----------
SOUTH CAROLINA--2.1%
7,500 Florence Cnty. Hospital Rev., 5.00%, 11/1/31, Ser. A (FSA) Aaa/AAA 7,642,425
6,700 Jobs Economic Dev. Auth. Rev., 5.625%, 11/15/30 A3/A- 6,828,372
-----------
14,470,797
-----------
TENNESSEE--0.7%
1,250 Knox Cnty. Health Educational & Housing Facs. Board Hospital
Facs. Rev., 5.25%, 10/1/30 A1/AA- 1,284,450
3,500 Memphis Electric Syst. Rev., 5.00%, 12/1/12, Ser. A. (MBIA) Aaa/AAA 3,887,905
-----------
5,172,355
-----------
9.30.04 PIMCO Municipal Income Funds III Annual Report 9
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- --------------------------------------------------------------------------------------------------------------
TEXAS--10.3%
$ 4,135 Canyon Independent School Dist., GO, 5.00%,
2/15/28, Ser. A (PSF) NR/AAA $ 4,194,006
2,500 Columbia & Brazoria Independent School Dist., GO, 5.00%,
8/1/29 (PSF) NR/AAA 2,533,650
1,300 Comal Cnty. Health Facs. Dev. Healthcare Syst. Rev., 6.25%,
2/1/32 Baa2/BBB 1,327,742
33,000 Denton Independent School Dist., GO,
zero coupon, 8/15/26-8/15/31 (PSF) Aaa/AAA 8,293,390
Harris Cnty. Health Facs. Dev. Corp. Rev., Ser. A,
2,750 5.375%, 2/15/26 NR/AA- 2,815,505
5,000 5.375%, 7/1/29 (MBIA) Aaa/AAA 5,172,750
Harris Cnty., GO,
4,400 5.125% 8/15/31 Aa1/AA+ 4,984,408
19,500 5.125% 8/15/32 (FSA) Aaa/AAA 19,948,305
4,005 Houston, GO, 5.00%, 3/1/25 (MBIA) Aaa/AAA 4,096,835
5,000 Houston Water & Sewer Syst. Rev., 5.00%, 12/1/30,
Ser. A (FSA) (Pre-refunded @ 100, 12/1/12) (a) Aaa/AAA 5,610,850
7,000 Judson Independent School Dist., GO, 5.00%, 2/1/30 (PSF) Aaa/NR 7,063,700
415 Leander Independent School Dist., GO, 5.00%, 8/15/32 (PSF) NR/AAA 419,005
1,500 North Thruway Auth., Dallas North Thruway Syst. Rev., 5.00%,
1/1/33, Ser. A (AMBAC) Aaa/AAA 1,522,140
2,105 Northwest Harris Cnty. Muni Utility Dist. No. 16, GO, 5.30%,
10/1/29 (Radian) NR/AA 2,144,953
2,000 University of Texas, 5.00%, 7/1/26, Ser. B Aaa/AAA 2,051,040
------------
72,178,279
------------
UTAH--0.8%
4,100 Salt Lake Cnty. Hospital Rev., 5.125%, 2/15/33 (AMBAC) Aaa/AAA 4,184,132
1,750 Weber Cnty., Hospital Rev., 5.00%, 8/15/30 Aa1/AA+ 1,752,905
------------
5,937,037
------------
WASHINGTON--6.9%
6,375 Chelan Cnty. Public Utility Dist. Rev., No. 001,
5.125%, 7/1/33, Ser. C (AMBAC) Aaa/AAA 6,515,378
15,000 King Cnty. Sewer Rev., 5.00%, 1/1/35, Ser. A (FSA) Aaa/AAA 15,198,900
3,000 Port Seattle Rev., 5.00%, 9/1/24 (FGIC) Aaa/AAA 3,092,700
24,350 Tobacco Settlement Auth., Tobacco Settlement Rev.,
6.50%, 6/1/26 Baa3/BBB 23,659,434
------------
48,466,412
------------
WISCONSIN--0.1%
560 Badger Tobacco Asset Securitization Corp., 6.00%, 6/1/17 Baa3/BBB 542,595
------------
Total Municipal Bonds & Notes (cost-$615,762,487) 633,567,132
------------
10 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- -----------------------------------------------------------------------------------------------------------
VARIABLE RATE NOTES (b)(c)(d)--6.5%
CALIFORNIA--1.5%
$ 7,000 State Economic Recovery, 17.325%, 7/1/11, Ser. 930 NR/AAA $ 10,812,410
------------
ILLINOIS--0.3%
1,990 Dev. Finance Auth. Gas Supply Rev., 21.56%, 2/1/11 (AMBAC) NR/NR 2,206,870
------------
MICHIGAN--1.7%
4,990 Detroit Sewer Disposal Rev., 22.20%, 7/1/11 (FSA) NR/AAA 5,691,444
5,720 Detroit Water Supply Syst. Rev., 20.67%, 1/1/11 (MBIA) NR/AAA 6,437,860
------------
12,129,304
------------
NEW MEXICO--0.2%
1,005 State Auth. Transit Rev., 8.04%, 6/15/12, Ser. 949 (AMBAC) Aaa/NR 1,238,321
------------
TEXAS--1.7%
2,450 Dallas Area Rapid Transit Rev., 18.10%, 12/1/26 (FGIC) NR/NR 2,650,876
5,058 Denton Independent School Dist., GO, 8.04%, 8/15/33 (PSF) Aaa/NR 5,155,110
1,870 Mansfield Independent School Dist., GO, 21.44%, 2/15/23 (PSF) NR/NR 2,040,525
2,060 University Rev., 18.49%, 8/15/27 NR/NR 2,242,289
------------
12,088,800
------------
WASHINGTON--1.1%
1,520 King Cnty. Sewer Rev., 22.02%, 7/1/11 (FGIC) NR/NR 1,674,903
3,655 Port Tacoma, GO, 20.00%, 12/1/33 (AMBAC) NR/NR 4,003,175
1,510 Seattle Drain & Wastewater Rev., 22.15%, 7/1/10 (FGIC) NR/NR 1,656,697
------------
7,334,775
------------
Total Variable Rate Notes (cost-$43,393,633) 45,810,480
------------
VARIABLE RATE DEMAND NOTES (b)(e)--2.5%
CALIFORNIA--0.2%
1,100 Metropolitan Water Dist., Southern CA. Waterworks Rev.,
1.73%, 10/1/04, Ser. B-3 VMIG1/A-1+ 1,100,000
------------
TEXAS--2.3%
5,000 Gulf Coast Waste Disp. Auth. Pollution Control Rev.,
1.61%, 10/1/04 VMIG1/A-1+ 5,000,000
11,250 Lower Neches Valley Industrial Dev. Corp. Exempt Facs. Rev.,
1.65%, 10/1/04, Ser. A VMIG1/A-1+ 11,250,000
------------
16,250,000
------------
Total Variable Rate Demand Notes (cost-$17,350,000) 17,350,000
------------
U.S. TREASURY BILLS (f)--1.4%
10,055 1.56%-1.67%, 12/2/04-12/16/04 (cost-$10,024,285) 10,024,251
------------
TOTAL INVESTMENTS, BEFORE OPTIONS WRITTEN
(cost-$686,530,405)--100.4% 706,751,863
------------
9.30.04 PIMCO Municipal Income Funds III Annual Report 11
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (concluded)
- --------------------------------------------------------------------------------
Contracts Value
- ---------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN (g)--(0.4)%
U.S. Treasury Bonds Futures, Chicago Board of Trade:
(389) Strike Price $108, expires 11/26/04 $ (1,762,656)
(210) Strike Price $109, expires 11/26/04 (794,063)
(360) Strike Price $114, expires 11/26/04 (208,125)
------------
Total call options written (premiums received-$2,274,090) (2,764,844)
------------
PUT OPTIONS WRITTEN (g)--(0.0)%
(582) U.S. Treasury Bonds Futures, Chicago Board of Trade:
Strike Price $108, expires 11/26/04 (premiums received-$288,818) (190,969)
------------
Total options written (premiums received-$2,562,908) (2,955,813)
------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN (cost-$683,967,497)--100.0% $703,796,050
------------
12 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- -------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS & NOTES--84.9%
$ 14,925 Association of Bay Area Governments Finance Auth. Rev., Odd
Fellows Home,
5.20%-5.35%, 11/15/22-11/15/32 NR/A $ 15,313,805
1,000 Alameda Public Finance Auth. Rev., 7.00%, 6/1/09 Baa2/NR 1,006,560
2,135 Burbank Public Finance Auth. Rev., San Fernando Redev. Project,
5.50%, 12/1/28-12/1/33 NR/BBB 2,137,441
2,000 Butte-Glenn Community College, GO,
5.00%, 8/1/26, Ser. A (MBIA) Aaa/NR 2,060,280
2,000 Capistrano Univ. School Dist., Community Fac. Dist., Special Tax,
6.00%, 9/1/32 NR/NR 2,062,440
1,000 Carlsbad Improvement Bond Act 1915, 6.00%, 9/2/34 NR/NR 1,030,360
1,000 Cathedral City Public Financing Auth. Rev.,
5.00%, 8/1/33, Ser A (MBIA) Aaa/AAA 1,018,590
1,150 Ceres Redev. Agcy. Tax Allocation,
5.00%, 11/1/33 (MBIA) Aaa/AAA 1,175,081
5,765 Ceres Unified School Dist., GO,
zero coupon, 8/1/28-8/1/29 (FGIC) Aaa/AAA 1,488,152
3,895 Chula Vista Community Fac. Dist., Special Tax.,
5.75%-6.20%, 9/1/26-9/1/33 NR/NR 4,004,737
945 Chula Vista Improvement Board Act 1915, Special Assessment,
6.15%, 9/2/29 NR/NR 973,048
8,000 Contra Costa Cnty. Public Financing Auth. Tax Allocation Rev.,
5.625%, 8/1/33 NR/BBB 8,118,720
3,775 Cucamonga School Dist., CP,
5.20%, 6/1/27 NR/A- 3,780,398
5,205 Eastern Muni. Water Dist. Community Facs., Special Tax,
5.75%-6.10%, 9/1/27-9/1/33 NR/NR 5,309,192
2,500 Educational Fac. Auth. Rev., Institute of Technology,
5.00%, 10/1/32, Ser. A Aaa/AAA 2,547,200
2,455 Educational Facs. Auth. Rev., Loyola-Marymount University,
zero coupon, 10/1/34 (MBIA) Aaa/NR 485,231
5,000 Educational Facs. Auth. Rev., Pepperdine Univ.,
5.00, 9/1/33, Ser. A (FGIC) Aaa/AAA 5,094,550
500 Franklin-Mckinley School Dist., GO,
5.00%, 8/1/27, Ser. B (FSA) Aaa/AAA 513,240
5,000 Fremont Community Facs. Dist., Special Tax,
6.30%, 9/1/31 NR/NR 5,152,300
9,500 Fresno School Unified Dist., GO,
6.00%, 8/1/26, Ser. A (MBIA) Aaa/AAA 11,422,135
4,380 Glendale Electric Works Rev.,
5.00%, 2/1/27 (MBIA) Aaa/AAA 4,490,595
56,490 Golden State Tobacco Securitization Corp., Tobacco Settlement
Rev., 6.25%-6.75%, 6/1/33-6/1/39, Ser. 2003-A-1 Baa3/BBB 54,226,193
Health Facs. Financing Auth. Rev.,
5,000 5.00%, 3/1/33, Ser. A NR/A 4,917,800
6,000 5.00%, 11/1/33, Ser. B (MBIA) Aaa/AAA 6,082,800
2,000 6.25%, 8/15/35, Ser. A A1/AA- 2,223,300
9.30.04 PIMCO Municipal Income Funds III Annual Report 13
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- -----------------------------------------------------------------------------------------------------------
$ 5,000 Health Facs. Financing Auth. Rev., Kaiser Permanente,
5.00%, 10/1/18, Ser. B A3/AAA $ 5,312,800
3,550 Health Fac. Financing Auth. Rev., Northern California Ret.
Officers, 5.125%-5.250%, 1/1/22-1/1/26 NR/A 3,672,971
2,750 Infrastructure & Economic Dev. Bank Rev., Claremount Univ.
Consortium, 5.25%, 10/1/33 Aa3/NR 2,866,490
Infrastructure & Economic Dev. Rev., Kaiser Assistance Corp.,
3,000 5.50%, 8/1/31 Ser. B A2/A 3,099,240
8,000 5.55%, 8/1/31 Ser. A NR/A 8,292,880
3,725 La Mesa-Spring Valley School Dist., GO,
5.00%, 8/1/26, Ser. A (FGIC) Aaa/AAA 3,826,655
1,400 La Quinta Redev. Agcy, Tax Allocation,
5.10%, 9/1/31 (AMBAC) Aaa/AAA 1,435,182
20 Lancaster Financing Auth. Tax Allocation Rev.,
4.75%, 8/1/33-2/1/34 (MBIA) Aaa/AAA 19,626
825 Lee Lake Water Dist. Community Facs. Dist., Special Tax,
6.125, 9/1/32 NR/NR 850,666
5,000 Long Beach Community College Dist.,
5.00%, 5/1/28, Ser. A (MBIA) Aaa/AAA 5,122,400
Los Angeles Unified School Dist., GO,
7,650 5.00%, 1/1/28, Ser. A (MBIA) Aaa/AAA 7,839,949
3,000 5.125%, 1/1/27, Ser. E (MBIA) Aaa/AAA 3,131,160
1,000 Lynwood Unified School Dist., GO,
5.00%, 8/1/27, Ser. A (FSA) Aaa/NR 1,026,480
5,280 Modesto Irrigation Dist., CP,
5.00%, 7/1/33 (MBIA) Aaa/AAA 5,388,293
2,180 Murrieta Valley Unified School Dist., Special Tax,
6.40%, 9/1/24 NR/NR 2,271,146
5,000 Oakland GO,
5.00%, 1/15/33, Ser. A (MBIA) Aaa/AAA 5,098,100
2,530 Oakland Redev. Agcy., Tax Allocation,
5.25%, 9/1/27-9/1/33 NR/A- 2,535,349
5,000 Orange Cnty. Community Facs. Dist., Special Tax,
5.55%, 8/15/33, Ser. A NR/NR 5,024,900
5,000 Orange Cnty. Unified School Dist., CP,
4.75%, 6/1/29 (MBIA) Aaa/AAA 4,978,100
1,000 Orange Cnty. Water Dist. Rev., CP,
5.00%, 8/15/28 (MBIA) Aaa/AAA 1,025,130
2,000 Palm Desert Financing Auth., Tax Allocation Rev.,
5.00%, 4/1/25, Ser. A (MBIA) Aaa/AAA 2,076,540
1,410 Pomona Public Financing Auth. Rev.,
5.00%, 12/1/37, Ser. AF (MBIA) Aaa/AAA 1,432,560
3,385 Poway Unified School Dist., Special Tax,
6.05%-6.125%, 9/1/25-9/1/33 NR/NR 3,460,597
5,000 Riverside CP,
5.00%, 9/1/33 (AMBAC) NR/AAA 5,104,250
500 Rocklin Unified School Dist. Community Facs., Special Tax,
5.00%, 9/1/29 (MBIA) Aaa/AAA 510,060
14 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- -----------------------------------------------------------------------------------------------------
$ 7,680 Rowland Unified School Dist., GO,
5.00%, 8/1/28, Ser. B (FSA) Aaa/AAA $ 7,872,230
1,470 Sacramento City Financing Auth. Rev.,
6.25%, 9/1/23, Ser. A NR/NR 1,526,345
San Diego Unified School Dist., GO,
480 5.00%, 7/1/26, Ser. C (FSA) Aaa/AAA 494,352
19,425 5.00%, 7/1/26-7/1/28, Ser. E (FSA) Aaa/AAA 19,963,093
1,500 San Diego Univ. Foundation Auxiliary Organization, Rev.,
5.00%, 3/1/27, Ser. A (MBIA) Aaa/AAA 1,534,395
3,000 San Jose Libraries & Parks Project, GO,
5.125%, 9/1/31 Aa1/AA+ 3,079,650
16,085 Santa Ana Unified School Dist., GO,
zero coupon, 8/1/26-8/1/32, Ser. B (FGIC) Aaa/AAA 4,135,911
1,250 Santa Clara Valley Transportation Auth., Sales Tax Rev.,
5.00%, 6/1/26, Ser. A (MBIA) Aaa/AAA 1,276,150
6,000 Santa Margarita Water Dist., Special Tax,
6.25%, 9/1/29 NR/NR 6,217,535
1,205 Sequoia Union High School Dist., GO,
5.00%, 7/1/23-7/1/24 (MBIA) Aaa/NR 1,261,358
4,475 Simi Valley Community Dev. Agcy., Tax Allocation,
5.00%, 9/1/25 (FGIC) Aaa/AAA 4,620,930
4,250 Sonoma Cnty. Jr. College Dist.,
5.00%, 8/1/27, Ser. A (FSA) Aaa/AAA 4,362,540
1,000 Sonoma Cnty. Water Agcy. Water Rev.,
5.00%, 7/1/32, Ser. A (MBIA) Aaa/AAA 1,018,460
South Tahoe Joint Powers Financing Auth.,
2,500 5.125%, 10/1/09 NR/NR 2,557,775
4,425 5.45%, 10/1/33 NR/BBB 4,437,434
14,900 Southern CA. Public Power Auth., Power Project Rev.,
5.00%, 7/1/33 (AMBAC) Aaa/AAA 15,205,599
4,095 State Dept. Veteran Affairs Home Purchase Rev.,
5.35%, 12/1/27, Ser. A (AMBAC) Aaa/AAA 4,236,278
State Public Works Board Lease Rev.,
5,385 5.00%, 10/1/19 A3/A- 5,613,486
4,600 5.00%, 4/1/28, Ser. A Aa2/AA- 4,657,086
1,105 5.375 4/1/28 Baa1/A- 1,139,542
3,505 Statewide Community Dev. Auth., CP, Internext Group,
5.375%, 4/1/30 NR/BBB- 3,398,588
Statewide Community Dev. Auth. Rev.,
15,000 5.50%, 10/1/33, Ser. A A3/A 15,534,600
7,300 5.50%, 11/15/33, Ser. A NR/A 7,558,712
10,000 5.50% 8/15/34, Ser. B A1/AA- 10,340,800
2,500 7.25%, 10/1/33 NR/NR 2,567,150
1,795 Sunnyvale Financing Auth., Water & Wastewater Rev.,
5.00%, 10/1/26 (AMBAC) Aaa/AAA 1,839,642
2,000 Tamalpais Union High School Dist., GO,
5.00%, 8/1/26 (MBIA) Aaa/AAA 2,054,580
9.30.04 PIMCO Municipal Income Funds III Annual Report 15
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
- ---------------------------------------------------------------------------------------------------------
$ 2,000 Temecula Public Financing Auth., Special Tax,
6.00%, 9/1/33, Ser. A NR/NR $ 2,071,820
Tobacco Securitization Agcy. Rev.,
15,100 5.875%-6.00%, 6/1/35-6/1/42 Baa3/NR 12,943,955
2,000 6.125%, 6/1/43 NR/BBB 1,755,380
2,950 Torrance Medical Hospital Rev.,
5.50%, 6/1/31 A1/A+ 3,026,434
4,000 Vernon Electric System Rev.,
5.50%, 4/1/33 A2/BBB+ 4,100,560
1,000 West Basin Municipal Water Dist. Rev., CP,
5.00%, 8/1/30 Aaa/AAA 1,021,400
2,500 William S. Hart Union High School Dist., Special Tax,
6.00%, 9/1/33 NR/NR 2,551,650
2,750 Woodland Finance Auth. Lease Rev.,
5.00%, 3/1/32 (XLCA) Aaa/AAA 2,792,267
------------
Total California Municipal Bonds & Notes (cost-$392,608,378) 400,803,359
------------
OTHER MUNICIPAL BONDS & NOTES--3.8%
NEW YORK--0.6%
2,500 New York State Dormitory Auth. Revs.,
6.25%, 8/15/15 (FHA) Aa2/AAA 2,876,075
------------
PUERTO RICO--3.2%
3,500 Commonwealth, GO, 5.00%, 7/1/30, Ser. A Baa1/A- 3,801,105
1,500 Electric Power Auth. Power Rev.,
5.125%, 7/1/29, Ser NN A3/A- 1,544,070
Public Buildings Auth. Rev.,
4,420 5.00%, 7/1/36, Ser. I Baa1/A- 4,453,592
290 5.25%, 7/1/36, Ser. D Baa1/A- 298,332
790 5.25%, 7/1/36, Ser. D (Pre-refunded @ 100, 7/1/12) (a) Baa1/A- 891,539
3,800 Public Finance Corp. Rev.,
5.75, 8/1/27, Ser. A Baa2/BBB+ 4,282,486
------------
15,271,124
------------
Total Other Municipal Bonds & Notes (cost-$17,309,209) 18,147,199
------------
CALIFORNIA VARIABLE RATE NOTES (b)(c)(d)--9.5%
1,465 Infrastructure & Economic Dev. Bank Rev.,
18.21%, 7/1/29 (AMBAC) NR/NR 1,619,455
Los Angeles Unified School Dist., GO,
1,745 17.27%, 1/1/23 Ser. 1763-B (MBIA) NR/NR 1,730,918
2,090 19.91%, 1/1/11 Ser. 1763-A, (MBIA) NR/NR 3,445,658
2,020 Los Angeles Water & Power Rev.,
17.09%, 1/1/25 NR/NR 2,132,191
950 Orange Cnty. Water Dist. Rev., CP,
19.83%, 2/15/11 (MBIA) NR/NR 1,064,646
710 Pajaro Valley Unified School Dist., GO,
23.49%, 8/1/11 NR/NR 860,697
16 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/ S&P)* Value
=======================================================================================================
$ 1,170 Pasadena Water Rev.,
18.91%, 6/1/27 (FGIC) NR/NR $ 1,301,426
1,785 Sacramento Cnty. Water Financing Auth. Rev.,
20.59%, 6/1/11 (AMBAC) NR/NR 2,005,287
1,150 Sacramento Muni. Utility Dist., Electric Rev.,
23.35%, 2/15/11 (MBIA) NR/NR 1,316,002
1,725 San Diego Community College Dist., GO,
23.48%, 5/1/11 (FSA) NR/NR 2,020,596
2,680 San Marcos Public Facs. Auth. Tax Allocation Rev.,
19.96%, 2/1/11-8/1/11 (FGIC) NR/NR 2,897,657
2,065 Southern CA Public Power Auth., Power Project Rev.,
20.28%, 7/1/11 (AMBAC) NR/NR 2,317,488
11,300 State Economic Recovery, 8.07%, 7/1/12, Ser. 956 (MBIA) NR/NR 13,903,972
6,980 University of CA. Rev.,
23.18%, 9/1/31-9/1/34 (FSA) NR/NR 8,002,578
------------
Total California Variable Rate Notes (cost-$44,083,712) 44,618,571
------------
CALIFORNIA VARIABLE RATE DEMAND NOTES (b)(e)--0.8%
835 Irvine Ranch Water Dist., GO,
1.62%, 10/1/04 VMIG/A-1+ 835,000
1,400 Metropolitan Water Dist., Southern CA Waterworks Rev.,
1.73%, 10/1/04, Ser. B-3 (AMBAC) VMIG1/A-1+ 1,400,000
1,685 Orange Cnty. Sanitation Dist., CP,
1.73%, 10/1/04, Ser. B (AMBAC) VMIG1/A-1+ 1,685,000
------------
Total California Variable Rate Demand Notes (cost-$3,920,000) 3,920,000
------------
U.S. TREASURY BILLS (f)--1.4%
6,600 1.56%-1.66%, 12/2/04-12/16/04 (cost-$6,579,887) Aaa/AAA 6,579,867
------------
TOTAL INVESTMENTS BEFORE CALL OPTIONS WRITTEN
(cost-$464,501,186)--100.4% 474,068,996
------------
CALL OPTIONS WRITTEN (g)--(0.4)%
Contracts
---------
U.S. Treasury Bonds Futures, Chicago Board of Trade,
(261) Strike Price $108, expires 11/26/04 (1,182,656)
(141) Strike Price $109, expires 11/26/04 (533,156)
(244) Strike Price $114, expires 11/26/04 (141,063)
------------
Total call options written (premiums received-$1,528,197) (1,856,875)
------------
9.30.04 PIMCO Municipal Income Funds III Annual Report 17
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Contracts Value
- ---------------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN (g)--(0.0)%
(364) U.S. Treasury Bonds Futures, Chicago Board of Trade:
Strike Price $108, expires 11/26/04 (premiums
received-$180,635) $ (119,437)
------------
Total options written (premiums received-$1,708,832) (1,976,312)
------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN (cost-$462,792,354)--100.0% $472,092,684
============
18 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/S&P)* Value
- --------------------------------------------------------------------------------------------------------------
NEW YORK MUNICIPAL BONDS & NOTES--77.3%
$ 2,800 East Rochester Housing Auth. Revs., St. Mary's Residence Project,
5.375%, 12/20/22 (GNMA) NR/AAA $ 2,975,560
1,000 Long Island Power Auth. Electric. Syst. Revs.,
5.00%, 9/1/27, Ser. C Baa1/A- 1,011,420
5,000 Metropolitan Transportation Auth. Revs., 5.00%, 11/15/31,
Ser, F (MBIA) Aaa/AAA 5,103,350
1,000 Monroe Tobacco Asset Securitization Corp. Tobacco Settlement
Revs., 6.375%, 6/1/35 Baa1/BBB 984,410
2,000 Nassau Cnty. Tobacco Settlement Corp. Revs., 6.60%, 7/15/39 Baa1/BBB- 1,980,880
8,945 New York City, GO, 5.00%-5.375%, 3/1/27-3/1/33, Ser. I A2/A 9,057,687
5,000 New York City Muni. Water Finance Auth., Water & Sewer Syst.
Revs., 5.00%, 6/15/32, Ser. A Aa2/AA+ 5,064,900
1,000 Niagara Falls Public Water Auth., Water & Sewer Syst. Revs.,
5.00%, 7/15/34, Ser. A (MBIA) Aaa/AAA 1,020,580
2,855 Sachem Central School Dist., GO, 5.00%, 6/15/30 (MBIA) Aaa/AAA 2,925,604
2,000 Schenectady Industrial Dev. Agcy., Union College Fac. Revs.,
5.00% 7/1/32, Ser. A (AMBAC) Aaa/NR 2,042,460
2,995 State Cnty. Tobacco Settlement Trust, 5.625%, 6/1/35 Baa1/BBB 2,706,791
2,000 State Dormitory Auth. Revs., Columbia Univ.,
5.00%, 7/1/24, Ser. A Aaa/AAA 2,102,440
1,000 State Dormitory Auth. Revs., FHA-NY & Presbyterian Hospitalital,
4.75%, 8/1/27 (AMBAC) Aaa/AAA 1,002,730
2,250 State Dormitory Auth. Revs., Jewish Board Family & Children,
5.00%, 7/1/33 (AMBAC) Aaa/AAA 2,296,148
2,000 State Dormitory Auth. Revs., Kaleida Health,
5.05%, 2/15/25 (FHA) NR/AAA 2,046,320
4,500 State Dormitory Auth. Revs., Lenox Hill Hospital,
5.50%, 7/1/30 A3/NR 4,695,345
6,040 State Dormitory Auth. Revs., Long Island Univ.,
5.00%, 9/1/23-9/1/32, Ser. A (Radian) Baa3/AA 6,140,509
3,000 State Dormitory Auth. Revs., Lutheran Medical Hospital,
5.00%, 8/1/31 (MBIA) Aaa/AAA 3,063,270
3,750 State Dormitory Auth. Revs., Memorial Sloan-Kettering Center,
5.00%, 7/1/34, Ser. 1 Aa2/AA 3,813,450
4,000 State Dormitory Auth. Revs., Mount St. Mary College,
5.00%, 7/1/27-7/1/32 (Radian) NR/AA 4,050,580
6,150 State Dormitory Auth. Revs., North General Hospital.,
5.00%, 2/15/25 NR/AA- 6,242,004
1,000 State Dormitory Auth. Revs., North Shore L.I. Jewish Group,
5.50%, 5/1/33 A3/NR 1,042,260
1,000 State Dormitory Auth. Revs., New York Univ.,
5.00%, 7/1/31, Ser. 2 (AMBAC) Aaa/AAA 1,017,660
1,000 State Dormitory Auth. Revs., School Dist. Financing,
5.00%, 10/1/30, Ser. D (MBIA) Aaa/AAA 1,021,120
1,250 State Dormitory Auth. Revs., Skidmore College,
5.00%, 7/1/28 (FGIC) Aaa/NR 1,284,850
9.30.04 PIMCO Municipal Income Funds III Annual Report 19
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/S&P)* Value
- -------------------------------------------------------------------------------------------------------------
$ 3,740 State Dormitory Auth. Revs., St. Barnabas,
5.00%, 2/1/31, Ser. A (AMBAC) Aaa/AAA $ 3,814,950
3,600 State Dormitory Auth. Revs., State Personal Income Tax,
5.00%, 3/15/32 A1/AA 3,644,424
1,250 State Dormitory Auth. Revs., Student Housing Corp.,
5.125%, 7/1/34 (FGIC) Aaa/AAA 1,295,000
1,500 State Dormitory Auth. Revs., Teachers College,
5.00%, 7/1/32 (MBIA) Aaa/NR 1,528,800
2,500 State Dormitory Auth. Revs., Winthrop-Nassau Univ.,
5.75%, 7/1/28 Baa1/NR 2,611,425
620 State Dormitory Auth. Revs., Winthrop Univ., Hospital
Association, 5.50%, 7/1/28-7/1/32, Ser. A Baa1/NR 636,380
2,000 State Dormitory Auth. Revs., Yeshiva University,
5.125%, 7/1/34 (AMBAC) Aaa/NR 2,072,000
1,900 State Urban Dev. Corp. Revs., 5.00%, 3/15/33, Ser. C-1 A1/AA 1,916,872
2,000 Warren & Washington Cnty. Industrial Dev. Agcy. Civic Fac. Revs.,
5.00%, 12/1/35, Ser. A (FSA) Aaa/AAA 2,027,740
1,250 Westchester Cnty. Industrial Dev. Agcy. Continuing Care,
6.50%, 1/1/34 NR/NR 1,283,475
-----------
Total New York Municipal Bonds & Notes (cost-$93,320,822) 95,523,394
-----------
OTHER MUNICIPAL BONDS & NOTES--10.6%
CALIFORNIA--4.4%
5,560 Golden State Tobacco Securization Corp. Tobacco Settlement
Revs., 6.75%, 6/1/39, Ser. 2003-A-1, Baa3/BBB 5,372,016
-----------
DISTRICT OF COLUMBIA--0.1%
175 Tobacco Settlement Financing Corp., 6.50%, 5/15/33 Baa3/BBB 161,205
-----------
PUERTO RICO--5.7%
2,280 Children Trust Fund, Tobacco Settlement Revs.,
5.50%-5.625%, 5/15/39-5/15/43 Baa3/BBB 1,982,149
1,000 Electric Power Auth. Revs., 5.125%, 7/1/29, Ser. NN A3/A- 1,029,380
4,000 Public Buildings Auth. Revs., Government Facs.,
5.00%, 7/1/36, Ser. I Baa1/A- 4,030,400
-----------
7,041,929
-----------
SOUTH CAROLINA--0.3%
370 Tobacco Settlement Rev. Management Auth., Tobacco Settlement
Revs., 6.375%, 5/15/30, Ser. B Baa3/BBB 340,548
-----------
WASHINGTON--0.1%
135 Tobacco Settlement Auth., Tobacco Settlement Revs.,
6.625%, 6/1/32 Baa3/BBB 128,043
-----------
Total Other Municipal Bonds & Notes (cost-$12,188,132) 13,043,741
-----------
20 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings
(000) (Moody's/S&P)* Value
- ------------------------------------------------------------------------------------------------------------
NEW YORK VARIABLE RATE NOTES (b)(c)(d)--9.4%
$ 1,555 Metropolitan Transportation Auth. Revs.,
14.21%, 11/15/32, Ser. 862 (FGIC) Aaa/NR $ 1,700,983
1,667 New York City Trust for Cultural Resources Revs.,
11.14%, 2/1/34, Ser. 950 (FGIC) Aaa/NR 1,774,556
1,205 State Dormitory Auth. Revs., 19.76%, 7/1/26 NR/NR 1,375,941
2,780 State Environmental Facs. Corp., State Clean Water & Drinking,
15.67%, 7/15/23-7/15/27
1,845 State Housing Finance Agcy., State Personal Income Tax, NR/AAA 2,890,735
14.20%, 3/15/33, Ser. 859
2,000 Triborough Bridge & Tunnel Auth. Revs., NR/AA 1,845,000
8.06%, 11/15/32, Ser. 912 (MBIA)
Total New York Variable Rate Notes (cost-$10,980,563) NR/NR 2,085,360
------------
OTHER VARIABLE RATE NOTES (b)(c)(d)--1.2% 11,672,575
------------
960 California State Economic Recovery, GO, 18.575%, 1/1/10, Ser.
935 (cost-$1,317,723) Aa3/NR 1,479,744
NEW YORK VARIABLE RATE DEMAND NOTES (b)(e)--0.6% ------------
700 New York City Transitional Finance Auth., 1.71%, 10/1/04
(cost-$700,000) VMIG1/A-1+ 700,000
------------
U.S. TREASURY BILLS (f)--1.3%
1,665 1.56%-1.66%, 12/2/04-12/16/04 Aaa/AAA 1,659,709
Total U.S. Treasury Bills (cost-$1,659,684) ------------
TOTAL INVESTMENTS BEFORE CALL OPTIONS WRITTEN
(cost-$120,166,924)--100.4% 124,079,163
------------
CALL OPTIONS WRITTEN (g)--(0.4)%
Contracts U.S. Treasury Bonds Futures, Chicago Board of Trade:
- ---------
(70) Strike Price $108, expires 11/26/04 (317,187)
(37) Strike Price $109, expires 11/26/04 (139,906)
(63) Strike Price $114, expires 11/26/04 (36,422)
Total call options written (premiums received-$405,128) ------------
(493,515)
PUT OPTIONS WRITTEN (g)--(0.0)% ------------
(145) U.S. Treasury Bonds Futures, Chicago Board of Trade:
Strike Price $108, expires 11/26/04 (premiums
received-$71,956) (47,578)
------------
Total options written (premiums received-$477,084) (541,093)
------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN
(cost-$119,689,840)--100.0% $123,538,070
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9.30.04 PIMCO Municipal Income Funds III Annual Report 21
PIMCO MUNICIPAL INCOME FUNDS III SCHEDULE OF INVESTMENTS
September 30, 2004 (continued)
- --------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS:
* Unaudited
(a) 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.
(b) Variable Rate Notes--instruments whose interest rates change on a 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).
(c) 144A Security--Security 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
investors.
(d) Residual Interest/Tax Exempt Municipal Bonds. The interest rate shown bears
an inverse relationship to the interest rate on another security or the
value of an index.
(e) Maturity date shown is date of next call.
(f) All or partial principal amount segregated as initial margin on futures
contracts and options written.
(g) Non-income producing.
- --------------------------------------------------------------------------------
GLOSSARY
AMBAC-insured by American Municipal Bond Assurance Corp.
CP-Certificates of Participation
FGIC-insured by Financial Guaranty Insurance Co.
FHA-insured by Federal Housing Administration
FNMA-Federal National Mortgage Association
FSA-insured by Financial Security Assurance, Inc.
GO-General Obligation Bonds
GNMA-Government National Mortgage Association
MBIA-insured by Municipal Bond Investors Assurance
NR-Not Rated
PSF-Public School Fund
Radian-insured by Radian Guaranty Inc.
XLCA-insured by XL Capital Assurance
22 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2004
- --------------------------------------------------------------------------------
CALIFORNIA NEW YORK
MUNICIPAL III MUNICIPAL III MUNICIPAL III
--------------- --------------- ---------------
ASSETS:
Investments, at value (cost-$686,530,405, $464,501,186
and $120,166,924, respectively) $ 706,751,863 $ 474,068,996 $124,079,163
- --------------------------------------------------------- ------------- ------------- ------------
Cash 1,389,064 487,925 524,975
- --------------------------------------------------------- ------------- ------------- ------------
Interest receivable 11,925,113 7,739,044 1,753,164
- --------------------------------------------------------- ------------- ------------- ------------
Receivable for variation margin on futures contracts 863,606 691,789 179,638
- --------------------------------------------------------- ------------- ------------- ------------
Receivable for investments sold 708,150 6,852,562 --
- --------------------------------------------------------- ------------- ------------- ------------
Prepaid expenses 26,186 18,483 13,560
- --------------------------------------------------------- ------------- ------------- ------------
Total Assets 721,663,982 489,858,799 126,550,500
- --------------------------------------------------------- ------------- ------------- ------------
LIABILITIES:
Options written, at value (premiums received-$2,562,908,
$1,708,832, $477,084, respectively) 2,955,813 1,976,312 541,093
- --------------------------------------------------------- ------------- ------------- ------------
Dividends payable to common and preferred shareholders 2,616,261 1,733,174 441,519
- --------------------------------------------------------- ------------- ------------- ------------
Investment management fees payable 292,831 198,879 51,363
- --------------------------------------------------------- ------------- ------------- ------------
Accrued expenses 120,554 90,332 51,170
- --------------------------------------------------------- ------------- ------------- ------------
Total Liabilities 5,985,459 3,998,697 1,085,145
- --------------------------------------------------------- ------------- ------------- ------------
PREFERRED SHARES ($25,000 NET ASSET AND LIQUIDATION
VALUE PER SHARE APPLICABLE TO AN AGGREGATE OF
10,800, 7,400 AND 1,880, SHARES ISSUED AND
OUTSTANDING, RESPECTIVELY) 270,000,000 185,000,000 47,000,000
- --------------------------------------------------------- ------------- ------------- ------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 445,678,523 $ 300,860,102 $ 78,465,355
- --------------------------------------------------------- ------------- ------------- ------------
COMPOSITION OF NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS:
Common Stock:
Par value $0.00001 per share $ 310 $ 213 $ 54
- --------------------------------------------------------- ------------- ------------- ------------
Paid-in capital in excess of par 440,613,941 302,333,711 77,217,221
- --------------------------------------------------------- ------------- ------------- ------------
Undistributed net investment income 738,111 1,444,173 150,878
- --------------------------------------------------------- ------------- ------------- ------------
Accumulated net realized loss (11,883,586) (10,037,811) (2,316,612)
- --------------------------------------------------------- ------------- ------------- ------------
Net unrealized appreciation of investments, futures
contracts and options written 16,209,747 7,119,816 3,413,814
- --------------------------------------------------------- ------------- ------------- ------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 445,678,523 $ 300,860,102 $ 78,465,355
- --------------------------------------------------------- ------------- ------------- ------------
Common Shares Outstanding 31,035,173 21,302,905 5,446,069
- --------------------------------------------------------- ------------- ------------- ------------
NET ASSET VALUE PER COMMON SHARE $14.36 $14.12 $14.41
- --------------------------------------------------------- ------------- ------------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9.30.04 PIMCO Municipal Income Funds III Annual Report 23
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF OPERATIONS
For the year ended September 30, 2004
- --------------------------------------------------------------------------------
CALIFORNIA NEW YORK
MUNICIPAL III MUNICIPAL III MUNICIPAL III
---------------- --------------- ---------------
INTEREST INCOME:
Interest $ 41,311,642 $ 29,280,579 $ 7,385,010
- --------------------------------------------------------- ------------- ------------ ------------
EXPENSES:
Investment management fees 4,642,199 3,130,953 815,093
- --------------------------------------------------------- ------------- ------------ ------------
Auction agent fees and commissions 703,826 474,852 124,001
- --------------------------------------------------------- ------------- ------------ ------------
Custodian and accounting agent fees 137,838 122,422 74,808
- --------------------------------------------------------- ------------- ------------ ------------
Shareholder reports 76,403 41,025 7,467
- --------------------------------------------------------- ------------- ------------ ------------
Audit and tax services 54,380 43,734 24,446
- --------------------------------------------------------- ------------- ------------ ------------
Trustees' fees and expenses 37,922 28,851 14,614
- --------------------------------------------------------- ------------- ------------ ------------
Transfer agent fees 34,167 32,931 30,487
- --------------------------------------------------------- ------------- ------------ ------------
New York Stock Exchange listing fees 24,919 23,840 18,724
- --------------------------------------------------------- ------------- ------------ ------------
Insurance expense 15,281 11,788 4,708
- --------------------------------------------------------- ------------- ------------ ------------
Legal fees 14,195 8,321 2,954
- --------------------------------------------------------- ------------- ------------ ------------
Investor relations 4,495 5,842 1,725
- --------------------------------------------------------- ------------- ------------ ------------
Miscellaneous 10,654 9,682 6,541
- --------------------------------------------------------- ------------- ------------ ------------
Total expenses 5,756,279 3,934,241 1,125,568
- --------------------------------------------------------- ------------- ------------ ------------
Less: investment management fees waived (1,071,277) (722,528) (188,098)
- --------------------------------------------------------- ------------- ------------ ------------
custody credits earned on cash balances (17,409) (8,507) (5,314)
- --------------------------------------------------------- ------------- ------------ ------------
Net expenses 4,667,593 3,203,206 932,156
- --------------------------------------------------------- ------------- ------------ ------------
NET INVESTMENT INCOME $ 36,644,049 26,077,373 $ 6,452,854
- --------------------------------------------------------- ------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
- ---------------------------------------------------------
Investments (428,144) (1,110,934) (416,358)
- --------------------------------------------------------- ------------- ------------- ------------
Futures contracts (12,626,479) (7,188,575) (3,124,027)
- --------------------------------------------------------- ------------- ------------- ------------
Options written 3,569,844 980,839 362,691
- --------------------------------------------------------- ------------- ------------- ------------
Net change in unrealized appreciation/depreciation of:
Investments 16,383,883 16,021,187 2,152,012
- --------------------------------------------------------- ------------- ------------- ------------
Futures contracts (2,071,931) 1,125,673 1,290,240
- --------------------------------------------------------- ------------- ------------- ------------
Options written 1,931,016 1,148,921 391,222
- --------------------------------------------------------- ------------- ------------- ------------
Net realized and unrealized gain on investments, futures
contracts and options written 6,758,189 10,977,111 655,780
- --------------------------------------------------------- ------------- ------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
NET INVESTMENT OPERATIONS 43,402,238 37,054,484 7,108,634
- --------------------------------------------------------- ------------- ------------- ------------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (2,729,318) (1,861,708) (447,012)
- --------------------------------------------------------- ------------- ------------- ------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS RESULTING FROM INVESTMENT OPERATIONS $ 40,672,920 $ 35,192,776 $ 6,661,622
- --------------------------------------------------------- ------------- ------------- ------------
24 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
This page intentionally left blank.
9.30.04 PIMCO Municipal Income Funds III Annual Report 25
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
- --------------------------------------------------------------------------------
MUNICIPAL III
-------------------------------------------
For the period
October 31, 2002*
Year ended through
September 30, 2004 September 30, 2003
-------------------- --------------------
INVESTMENT OPERATIONS:
Net investment income $ 36,644,049 $ 24,191,132
- ----------------------------------------------------------------- -------------------- --------------------
Net realized gain (loss) on investments, futures contracts and
options written (9,484,779) (2,398,807)
- ----------------------------------------------------------------- -------------------- --------------------
Net change in unrealized appreciation/depreciation of
investments, futures contracts and options written 16,242,968 (33,221)
- ----------------------------------------------------------------- -------------------- --------------------
Net increase in net assets resulting from investment operations 43,402,238 21,759,104
- ----------------------------------------------------------------- -------------------- --------------------
DIVIDENDS ON PREFERRED SHARES FROM:
NET INVESTMENT INCOME (2,729,318) (2,035,317)
- ----------------------------------------------------------------- -------------------- --------------------
Net increase (decrease) in net assets applicable to common
shareholders resulting from investment operations 40,672,920 19,723,787
- ----------------------------------------------------------------- -------------------- --------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM:
NET INVESTMENT INCOME (30,938,077) (24,409,358)
- ----------------------------------------------------------------- -------------------- --------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock -- 441,625,425
- ----------------------------------------------------------------- -------------------- --------------------
Preferred shares underwriting discount charged to paid-in
capital in excess of par -- (2,700,000)
- ----------------------------------------------------------------- -------------------- --------------------
Common stock and preferred shares offering costs charged to
paid-in capital in excess of par -- (1,208,944)
- ----------------------------------------------------------------- -------------------- --------------------
Reinvestment of dividends 774,444 2,038,323
- ----------------------------------------------------------------- -------------------- --------------------
Net increase from capital share transactions 774,444 439,754,804
- ----------------------------------------------------------------- -------------------- --------------------
Total increase in net assets applicable to common shareholders 10,509,287 435,069,233
- ----------------------------------------------------------------- -------------------- --------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 435,169,236 100,003
- ----------------------------------------------------------------- -------------------- --------------------
End of period (including undistributed (dividends in excess of)
net investment income of $738,111 and ($2,238,543);
$1,444,173 and ($2,329,413); $150,878 and ($628,641);
respectively) $ 445,678,523 $ 435,169,236
- ----------------------------------------------------------------- -------------------- --------------------
COMMON SHARES ISSUED AND REINVESTED:
Issued -- 30,829,000
- ----------------------------------------------------------------- -------------------- --------------------
Issued in reinvestment of dividends 54,453 144,739
- ----------------------------------------------------------------- -------------------- --------------------
NET INCREASE 54,453 30,973,739
- ----------------------------------------------------------------- -------------------- --------------------
* Commencement of operations
26 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CALIFORNIA MUNICIPAL INCOME III NEW YORK MUNICIPAL III
- ------------------------------------------- -------------------------------------------
For the period For the period
October 31, 2002* October 31, 2002*
Year ended through Year ended through
September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003
- -------------------- -------------------- -------------------- --------------------
$ 26,077,373 $ 15,092,799 $ 6,452,854 $ 3,831,249
- -------------------- -------------------- -------------------- --------------------
(7,318,670) (2,719,141) (3,177,694) 861,082
- -------------------- -------------------- -------------------- --------------------
18,295,781 (11,175,965) 3,833,474 (419,660)
- -------------------- -------------------- -------------------- --------------------
37,054,484 1,197,693 7,108,634 4,272,671
- -------------------- -------------------- -------------------- --------------------
(1,861,708) (1,326,256) (447,012) (330,543)
- -------------------- -------------------- -------------------- --------------------
35,192,776 (128,563) 6,661,622 3,942,128
- -------------------- -------------------- -------------------- --------------------
(20,442,079) (16,095,956) (5,226,323) (4,129,347)
- -------------------- -------------------- -------------------- --------------------
-- 302,744,550 -- 77,698,800
- -------------------- -------------------- -------------------- --------------------
-- (1,850,000) -- (470,000)
- -------------------- -------------------- -------------------- --------------------
-- (897,594) -- (323,602)
- -------------------- -------------------- -------------------- --------------------
829,949 1,407,016 55,399 156,675
- -------------------- -------------------- -------------------- --------------------
829,949 301,403,972 55,399 77,061,873
- -------------------- -------------------- -------------------- --------------------
15,580,646 285,179,453 1,490,698 76,874,654
- -------------------- -------------------- -------------------- --------------------
285,279,456 100,003 76,974,657 100,003
- -------------------- -------------------- -------------------- --------------------
$ 300,860,102 $ 285,279,456 $ 78,465,355 $ 76,974,657
- -------------------- -------------------- -------------------- --------------------
-- 21,134,000 -- 5,424,000
- -------------------- -------------------- -------------------- --------------------
60,821 101,103 3,789 11,299
- -------------------- -------------------- -------------------- --------------------
60,821 21,235,103 3,789 5,435,299
- -------------------- -------------------- -------------------- --------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9.30.04 PIMCO Municipal Income Funds III Annual Report 27
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
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"), 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 closed-end management investment companies registered under
the Investment Company Act of 1940 and the rules and regulations thereunder, as
amended, and the sale and issuance of 6,981 shares of beneficial interest of
each Fund at an aggregate purchase price of $100,003 per Fund to Allianz
Dresdner Asset Management of America L.P. ("ADAM"). Effective October 25, 2004,
ADAM changed its name to Allianz Global Investors of America L.P. ("AGI"). PA
Fund Management LLC (the "Investment Manager"), serves as the Funds' Investment
Manager and is an indirect, wholly-owned subsidiary of AGI. AGI is an indirect,
majority-owned subsidiary of Allianz AG. The Funds each have an unlimited amount
of $0.00001 par value common stock authorized.
Municipal III invests substantially all of its assets in a portfolio of
municipal bonds, the interest from which is exempt from federal income taxes.
California Municipal III invests substantially all of its assets in municipal
bonds that pay interest that is exempt from federal and California state income
taxes. New York Municipal III invests substantially all of its assets in
municipal bonds that pay interest that is exempt from federal, New York State
and New York City income taxes. The Funds will seek to avoid 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.
Municipal III, California Municipal III and New York Municipal III issued
28,850,000, 19,500,000 and 5,000,000 shares of common stock, respectively, in
their initial public offerings. An additional 1,979,000, 1,634,000 and 424,000
shares of Municipal III, California Municipal III and New York Municipal III,
respectively, were issued in connection with the exercise of the underwriters'
over-allotment options on December 13, 2002. These shares were all issued at
$15.00 per share less an underwriting discount of $0.675 per share. The
Investment Manager agreed to reimburse the amount by which the aggregate of each
Fund's organizational and common offering costs (other than the sales load)
exceeded $0.03 per share. Common offering costs of $873,326, $634,020 and
$162,720 (representing $0.03 per share for each Fund), were offset against the
proceeds of the offerings and have been charged to paid-in capital in excess of
par. For Municipal III, aggregate common offering costs and organizational
expenses were less than $0.03 per common share. Consequently, organizational
expenses of $15,000 were expensed in the period October 31, 2002 (commencement
of operations) through September 30, 2003. For California Municipal III and New
York Municipal III, aggregate offering costs and organizational expenses
exceeded $0.03 per common share. As a result, all organizational expenses and
offering costs exceeding $0.03 per common share were reimbursed by the
Investment Manager.
In addition, the underwriters commission and offering costs associated with the
Funds' issuance of Preferred Shares in the amounts of $2,700,000 and $335,618,
$1,850,000 and $263,574 and $470,000 and $160,882, for Municipal III, California
Municipal III and New York Municipal III, respectively, have been charged to
paid-in capital in excess of par.
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the 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 which provide general indemnifications. The Funds'
maximum exposure under these arrangements is unknown as such exposure would
involve claims that may be made against the Funds based upon events that have
not yet been asserted. However, the Funds expect the risk of any loss to be
remote.
The following is a summary of significant accounting policies 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. The Fund's investments are
valued daily by an independent pricing service. Prices obtained from an
independent pricing service use information provided by market makers or
estimates of market values obtained from yield data relating to investments or
securities with similar characteristics. Short-term investments maturing in
sixty days or less are valued at amortized cost, if their original 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. Securities for which market
28 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
quotations are not readily available or if a development/event occurs that may
significantly impact the value of the security may be fair valued, pursuant to
guidelines established by the Board of Trustees. The prices used by the Funds to
value securities may differ from the value that would be realized if the
securities were sold. The Funds' net asset value is determined daily at the
close of regular trading (normally 4:00 p.m. Eastern time) on the New York Stock
Exchange.
(B) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income is recorded on an accrual basis. Original issue discounts or premiums on
debt securities purchased are accreted or amortized daily to non-taxable
interest income. Market discount, if any, is accreted daily to taxable income.
(C) FEDERAL INCOME TAXES
The Funds intend to distribute all of their taxable income and to comply with
the other requirements 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. In addition, by distributing substantially all
of their taxable ordinary income and long-term capital gains, if any, during
each calendar year, the Funds intend not to be subject to U.S. federal excise
tax.
(D) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
financial instrument at a set price on a future date. Upon entering into such a
contract, the Funds are required to pledge to the broker an amount of cash or
securities, held in a segregated account in the name of the futures broker at
the Fund's custodian bank, equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contracts, the Funds agree to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in the value of
the contracts. Such receipts or payments are known as "variation margin" and are
recorded by the Funds as unrealized appreciation or depreciation. When the
contracts are closed, the Funds record a realized gain or loss equal to the
difference between the value of the contracts at the time they were opened and
the value at the time they were closed. Any unrealized appreciation or
depreciation recorded is simultaneously reversed. The use of futures
transactions involves the risk of an imperfect correlation in the movements in
the price of futures contracts, interest rates and the underlying hedged assets,
and the possible inability of counterparties to meet the terms of their
contracts.
(E) OPTION TRANSACTIONS
For hedging purposes, the Funds may purchase and write (sell) put and call
options on municipal bonds, U.S. government securities, swap agreements, indexes
or futures contracts which are standardized and traded on a U.S. or other
exchange, boards of trade, or similar entity, or quoted on an automated
quotation system. The risk associated with purchasing an option is that the
Funds pay a premium whether or not the option is exercised. Additionally, the
Funds bear the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of securities
acquired through the exercise of call options is increased by the premiums paid.
The proceeds from the securities sold through the exercise of put options is
decreased by the premiums paid.
When an option is written, the premium received is recorded as an asset with an
equal liability which is subsequently adjusted to the current market value of
the option written. Premiums received from writing options which expire
unexercised are recorded on the expiration date as a realized gain. The
difference between the premium received and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase transactions, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security in determining whether there has been a realized gain or loss. If a put
option is exercised, the premium reduces the cost basis of the security. In
writing an option, the Funds bear the market risk of an unfavorable change in
the price of the security underlying the written option. Exercise of an option
written could result in the Funds purchasing a security at price different from
the current market price.
(F) RESIDUAL INTEREST/MUNICIPAL BONDS ("RIBS")/RESIDUAL INTEREST TAX EXEMPT
BONDS ("RITES")
The Funds invest in Residual Interest Municipal Bonds ("RIBS") and Residual
Interest Tax Exempt Bonds ("RITES") whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an index.
RIBS and RITES 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
9.30.04 PIMCO Municipal Income Funds III Annual Report 29
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
process normally every seven 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 interest rates
result in lower income for the longer-term portion, and vice versa. The
longer-term bonds may be more volatile and less liquid than other Municipal
Bonds of comparable maturity. An investment in RIBS and RITES typically will
involve greater risk than an investment in a fixed rate bond.
(G) DIVIDENDS AND DISTRIBUTIONS -- COMMON STOCK
The Funds declare dividends from net investment income monthly to common
shareholders. Distributions of net realized capital gains, if any, are paid at
least annually. Each Fund records dividends and distributions to its
shareholders on the ex-dividend date. The amount of dividends and distributions
from net investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles. 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 of paid-in capital in excess
of par.
(H) CUSTODY CREDITS EARNED ON CASH BALANCES
The Funds benefit from an expense offset arrangement with their custodian bank
whereby uninvested cash balances earn credits which reduce monthly custodian
expenses. Had these cash balances been invested in income producing securities,
they would have generated income for the Funds.
2. INVESTMENT MANAGER/SUB-ADVISER
Each Fund has entered into an Investment Management Agreement (the "Agreements")
with the Investment Manager to serve as Investment Manager to each Fund. Subject
to the supervision of each Fund's Board of Trustees, the Investment Manager is
responsible for managing, either directly or through others selected by it, the
investment activities of the Fund and the Fund's business affairs and other
administrative matters. Pursuant to the Agreements, the Investment Manager
receives an annual fee, payable monthly, at the annual rate of 0.65% of each
Fund's average daily net assets (including net assets attributable to any
preferred shares that may be outstanding). In order to reduce Fund expenses, the
Investment Manager has contractually agreed to waive a portion of its investment
management fee for each Fund at the annual rate of 0.15% of each Fund's average
daily net assets (including net assets attributable to any preferred shares that
may be outstanding) from the commencement of operations through October 31,
2007, and for a declining amount thereafter through October 31, 2009.
The Investment Manager has retained its affiliate, Pacific Investment Management
Company LLC (the "Sub-Adviser"), to manage each Fund's investments. Subject to
the supervision of the Investment Manager, the Sub-Adviser makes all investment
decisions for the Funds. The Investment Manager (not the Funds) pays a portion
of the fees it receives to the Sub-Adviser in return for its services, at the
maximum annual rate of 0.50% of each Fund's average daily net assets (including
net assets attributable to any preferred shares that may be outstanding). The
Sub-Adviser has contractually agreed to waive a portion of the fees it is
entitled to receive from the Investment Manager, such that the Sub-Adviser will
receive 0.26% of each Fund's average daily net assets (including net assets
attributable to any preferred shares that may be outstanding) from the
commencement of the Funds' operations through October 31, 2007, and will receive
an increasing amount (not to exceed 0.50% of each Fund's average daily net
assets, including net assets attributable to any preferred shares that may be
outstanding) thereafter through October 31, 2009. The Investment Manager
informed the Funds that it paid the Sub-Adviser $1,856,879, $1,252,381 and
$326,037 in connection with sub-advisory services for Municipal III, California
Municipal III and New York Municipal III, respectively, for the year ended
September 30, 2004.
3. INVESTMENTS IN SECURITIES
For the year ended September 30, 2004, purchases and sales of investments, other
than short-term securities, were:
California New York
Municipal III Municipal III Municipal III
- --------------------------------------------------------------------------------
Purchases $190,038,959 $183,540,510 $19,750,232
Sales 139,014,530 175,729,047 33,703,492
30 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
3. INVESTMENTS IN SECURITIES (CONTINUED)
(a) Futures contracts outstanding at September 30, 2004:
Notional
Value Expiration Unrealized
Fund Type (000) Date Depreciation
- --------------------------------------------------------------------------------------------------------
Municipal III Long: Eurodollar Futures $ 91,413 9/19/05 $ 12,275
Short: U.S. Treasury 30 Year Bond (234,649) 12/20/04 3,606,531
-----------
$ 3,618,806
===========
California Municipal III Long: Eurodollar Futures $ 61,831 9/19/05 $ 8,287
Short: U.S. Treasury 30 Year Bond (172,929) 12/20/04 2,172,227
-----------
$ 2,180,514
===========
New York Municipal III Long: Eurodollar Futures $ 16,246 9/19/05 $ 2,088
Short: U.S. Treasury 30 Year Bond (48,927) 12/20/04 432,328
--------
$434,416
========
(b) Transactions in options written for the year ended September 30, 2004:
Contracts Premiums
- --------------------------------------------------------------------------------------------
Municipal III:
- --------------
Options outstanding, September 30, 2003 1,958 $2,219,267
Options written 11,319 10,477,921
Options expired (266) (178,437)
Option terminated in closing purchase transactions (6,965) (6,846,041)
Options exercised (4,505) (3,109,802)
-------- ----------
Options outstanding, September 30, 2004 1,541 $2,562,908
======== ==========
California Municipal III:
- -------------------------
Options outstanding, September 30, 2003 1,161 $1,256,068
Options written 5,984 6,335,151
Option expired (318) (248,932)
Options terminated in closing purchase transactions (3,139) (2,753,783)
Options exercised (2,678) (2,879,672)
-------- ----------
Options outstanding, September 30, 2004 1,010 $1,708,832
======== ==========
New York Municipal III:
- -----------------------
Options outstanding, September 30, 2003 274 $221,207
Options written 2,023 2,084,707
Options expired (75) (50,311)
Options terminated in closing purchase transactions (1,157) (1,045,317)
Options exercised (750) (733,202)
-------- ----------
Options outstanding, September 30, 2004 315 $477,084
======== ==========
9.30.04 PIMCO Municipal Income Funds III Annual Report 31
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
4. INCOME TAX INFORMATION
Municipal III:
The tax character of dividends and distributions paid were:
October 31, 2002
(commencement of operations)
Year Ended through
September 30, 2004 September 30, 2003
- --------------------------------------------------------------------------------
Ordinary Income $ 682,286 $ 452,320
Tax Exempt Income $32,985,109 $25,992,355
At September 30, 2004, the tax character of distributable earnings of $738,111
was comprised entirely of tax exempt income.
At September 30, 2004, Municipal III had a capital loss carryforward of
$2,344,387 all which will expire in 2012, available as a reduction, to the
extent provided in the regulations, of any future net realized capital gains.
To the extent that these losses are used to offset future realized capital
gains, such gains will not be distributed.
In accordance with U.S. Treasury regulations, Municipal III elected to defer
realized capital losses of $13,550,904, arising after October 31, 2003. Such
losses are treated for tax purposes as arising on October 1, 2004.
California Municipal III:
- -------------------------
The tax character of dividends paid were:
October 31, 2002
(commencement of operations)
Year Ended through
September 30, 2004 September 30, 2003
- --------------------------------------------------------------------------------
Ordinary Income $ 365,952 $ 244,881
Tax Exempt Income $21,937,835 $17,177,331
At September 30, 2004, the tax character of distributable earnings of $1,444,173
was composed entirely of tax exempt income.
At September 30, 2004, California Municipal III had a capital loss carryforward
of $3,952,407 all which will expire in 2012, available as a reduction, to the
extent provided in the regulations, of any future net realized capital gains. To
the extent that these losses are used to offset future realized capital gains,
such gains will not be distributed.
In accordance with U.S. Treasury regulations, California Municipal III elected
to defer realized capital losses of $8,533,399, arising after October 31, 2003.
Such losses are treated for tax purposes as arising on October, 1, 2004.
New York Municipal III:
- -----------------------
The tax character of dividends paid were:
October 31, 2002
(commencement of operations)
Year Ended through
September 30, 2004 September 30, 2003
- --------------------------------------------------------------------------------
Ordinary Income $ 36,347 $ 11,559
Tax Exempt Income $5,636,988 $4,448,331
At September 30, 2004, the tax character of distributable earnings of $150,878
was composed entirely of tax exempt income.
At September 30, 2005, New York Municipal III had a capital loss carryforward of
$5,577 all which will expire in 2012, available as a reduction, to the extent
provided in the regulations, of any future net realized capital gains. To the
extent that these losses are used to offset future realized capital gains, such
gains will not be distributed.
In accordance with U.S. Treasury regulations, New York Municipal III elected to
defer realized capital losses of $2,809,460, arising after October 31, 2003.
Such losses are treated for tax purposes as arising on October 1, 2004.
32 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
4. INCOME TAX INFORMATION (CONTINUED)
The cost of investments for federal income tax purposes and gross unrealized
appreciation and gross unrealized depreciation of investments at September 30,
2004 were:
Gross Gross Net
Cost of Unrealized Unrealized Unrealized
Investments Appreciation Depreciation Appreciation
- ----------------------------------------------------------------------------------------------
Municipal III $686,530,410 $ 22,312,219 $ 2,090,766 $ 20,221,453
California Municipal III 464,501,186 13,405,798 3,837,988 9,567,810
New York Municipal III 120,166,924 4,118,862 206,623 3,912,239
5. AUCTION PREFERRED SHARES
Municipal III has issued 2,160 shares of Preferred Shares Series A, 2,160 shares
of Preferred Shares Series B, 2,160 shares of Preferred Shares Series C, 2,160
shares of Preferred Shares Series D and 2,160 shares of Preferred Shares Series
E each with a net asset and liquidation value of $25,000 per share plus accrued
dividends.
California Municipal III has issued 3,700 shares of Preferred Shares Series A
and 3,700 shares of Preferred Shares Series B each with a net asset and
liquidation value of $25,000 per share plus accrued dividends.
New York Municipal III has issued 1,880 shares of Preferred Shares Series A with
a net asset and liquidation value of $25,000 per share plus accrued dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures. Distributions of net realized capital gains, if any, are paid
annually.
For the year ended September 30, 2004, the annualized dividend rates ranged
from:
At September 30,
High Low 2004
- --------------------------------------------------------------------------------
Municipal III:
- --------------
Series A 1.75% 0.73% 1.53%
Series B 1.75% 0.45% 1.45%
Series C 1.53% 0.73% 1.53%
Series D 1.75% 0.45% 1.45%
Series E 1.75% 0.45% 1.50%
California Municipal III:
- -------------------------
Series A 1.75% 0.80% 1.51%
Series B 1.75% 0.80% 1.20%
New York Municipal III:
- -----------------------
Series A 1.51% 0.45% 1.51%
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 any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote with
the common stock but vote separately as a class to elect two Trustees and on any
matters affecting the rights of the Preferred Shares.
6. SUBSEQUENT COMMON DIVIDEND DECLARATIONS
On October 1, 2004, the following dividends were declared to common shareholders
payable November 1, 2004 to shareholders of record on October 15, 2004:
Municipal III $0.0831 per common share
California Municipal III $0.08 per common share
New York Municipal III $0.08 per common share
9.30.04 PIMCO Municipal Income Funds III Annual Report 33
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
6. SUBSEQUENT COMMON DIVIDEND DECLARATIONS (CONTINUED)
On November 1, 2004, the following dividends were declared to common
shareholders payable December 1, 2004 to shareholders of record on November 12,
2004:
Municipal III $0.0831 per common share
California Municipal III $0.08 per common share
New York Municipal III $0.08 per common share
7. LEGAL PROCEEDINGS
On September 13, 2004, the Securities and Exchange Commission (the "Commission")
announced that the Investment Manager and certain of its affiliates had agreed
to a settlement of charges that they and certain of their officers had, among
other things, violated various antifraud provisions of the federal securities
laws in connection with an alleged market-timing arrangement involving trading
of shares of various open-end investment companies ("open-end funds") advised or
distributed by the Investment Manager and certain of its affiliates. In their
settlement with the Commission, the Investment Manager and their affiliates
consented to the entry of an order by the Commission and, without admitting or
denying the findings contained in the order, agreed to implement certain
compliance and governance changes and consented to cease-and-desist orders and
censures. In addition, the Investment Manager and its affiliates agreed to pay
civil money penalties in the aggregate amount $40 million and to pay
disgorgement in the amount of $10 million, for an aggregate payment of $50
million. In connection with the settlement, the Investment Manager and its
affiliates have been dismissed from the related complaint the Commission filed
on May 6, 2004 in the U.S. District Court in the Southern District of New York.
Neither the complaint nor the order alleges any inappropriate activity took
place with respect to the Funds.
In a related action on June 1, 2004, the Attorney General of the State of New
Jersey announced that it had entered into a settlement agreement with AGI and
certain other affiliates of the Investment Manager, in connection with a
complaint filed by the New Jersey Attorney General ("NJAG") on February 17,
2004. The NJAG dismissed claims against the Sub-Adviser, which had been part of
the same complaint. In the settlement, AGI and other named affiliates neither
admitted nor denied the allegations or conclusions of law, but did agree to pay
New Jersey a civil fine of $15 million and $3 million for investigative costs
and further potential enforcement initiatives against unrelated parties. They
also undertook to implement certain governance changes. The complaint relating
to the settlement contained allegations arising out of the same matters that
were subject of the Commission order regarding market timing described above.
On September 15, 2004, the Commission announced that the Investment Manager and
certain of its affiliates agreed to settle an enforcement action in connection
with charges that they violated various antifraud and other provisions of
federal securities laws as a result of, among other things, their failure to
disclose to the board of trustees and shareholders of various open-end funds
advised or distributed by the Investment Manager and its affiliates material
facts and conflicts of interest that arose from their use of brokerage
commissions on portfolio transactions to pay for so-called "shelf space"
arrangements with certain broker-dealers. In the settlement, the Investment
Manager and its affiliates consented to the entry of an order by the Commission
without admitting or denying the findings contained in the order. In connection
with the settlement, the Investment Manager and its affiliates agreed to
undertake certain compliance and disclosure reforms and consented to
cease-and-desist orders and censures. In addition, the Investment Manager and
these affiliates agreed to pay a civil money penalty of $5 million and to pay
disgorgement of $6.6 million based upon the amount of brokerage commissions
alleged to have been paid by such open-end funds in connection with these
arrangements (and related interest). In a related action, the California
Attorney General announced on September 15, 2004 that it had entered an
agreement with an affiliate of the Investment Manager in resolution of an
investigation into matters that are similar to those discussed in the
Commission's order. The settlement agreement resolves matters described in the
compliant filed by the California Attorney General in the Superior Court of the
State of California alleging, among other things, that this affiliate violated
certain antifraud provisions of California law by failing to disclose matters
related to the shelf-space arrangements described above. In the settlement
agreement, the affiliate did not admit to any liability but agreed to pay $5
million in civil penalties and $4 million in recognition of the California
Attorney General's fees and costs associated with the investigation and related
matters. Neither the Commission's order nor the California Attorney General's
complaint alleges any inappropriate activity took place with respect to the
Funds.
Since February 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates have been named as defendants in 14 lawsuits filed in U.S.
District Court in the Southern District of New York, the Central District of
California and the Districts of New Jersey and Connecticut. Ten of those
lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of
34 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
September 30, 2004
- --------------------------------------------------------------------------------
7. LEGAL PROCEEDINGS (CONTINUED)
Maryland; the remaining four lawsuits concern "revenue sharing" with brokers
offering "shelf space" and have been consolidated into a single action in the
U.S. District Court for the District of Connecticut. The lawsuits have been
commenced as putative class actions on behalf of investors who purchased, held
or redeemed shares of affiliated funds during specified periods or as derivative
actions on behalf of the funds. The lawsuits generally relate to the same facts
that are the subject of the regulatory proceedings discussed above. The lawsuits
seek, among other things, unspecified compensatory damages plus interest and, in
some cases, punitive damages, the rescission of investment advisory contracts,
the return of fees paid under those contracts and restitution. The Funds have
been named in three of the lawsuits concerning market timing. The Investment
Manager and the Sub-Adviser believe that other similar lawsuits may be filed in
U.S. federal or state courts naming as defendants the Investment Manager, the
Sub-Adviser, AGI, the Funds, other open- and closed-end funds advised or
distributed by the Investment Manager, the Sub-Adviser and/or their affiliates,
the boards of trustees of those funds, and/or other affiliates and their
employees.
Under Section 9(a) of the Investment Company Act of 1940, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
the Investment Manager, the Sub-Adviser, AGI and/or their affiliates, they and
their affiliates would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the
Funds. In connection with an inquiry from the Commission concerning the status
of the New Jersey settlement described above under Section 9(a), the Investment
Manager, the Sub-Adviser, and certain of their affiliates (together, the
"Applicants") have sought exemptive relief from the Commission under Section
9(c) of the Investment Company Act of 1940. The Commission has granted the
Applicants a temporary exemption from the provisions of Section 9(a) with
respect to the New Jersey settlement until the earlier of (i) September 13, 2006
and (ii) the date on which the Commission takes final action on their
application for a permanent order. There is no assurance that the Commission
will issue a permanent order.
It is possible that these matters and/or other developments resulting from these
matters could lead to a decrease in the market price of the Funds' shares or
other adverse consequences to the Funds and their shareholders. However, the
Investment Manager and the Sub-Adviser believe that these matters are not likely
to have a material adverse effect on the Funds or on the Investment Manager's or
the Sub-Adviser's ability to perform its respective investment advisory services
relating to the Funds.
8. CORPORATE CHANGES
On July 29, 2004, Stephen Treadway resigned as the Funds' Chairman. On September
14, 2004, David C. Flattum was appointed to the Board of Trustees. On October 5,
2004, the Board of Trustees elected Robert E. Connor as Chairman.
9.30.04 PIMCO Municipal Income Funds III Annual Report 35
PIMCO MUNICIPAL INCOME FUND III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
- --------------------------------------------------------------------------------
For the period
October 31, 2002*
Year ended through
September 30, 2004 September 30, 2003
-------------------- -------------------
Net asset value, beginning of period $14.05 $14.33**
- ------------------------------------------------------------- -------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.18 0.78
- ------------------------------------------------------------- -------------------- -------------------
Net realized and unrealized gain (loss) on investments,
futures contracts and options written 0.22 (0.08)
- ------------------------------------------------------------- -------------------- -------------------
Total from investment operations 1.40 0.70
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.09) (0.06)
- ------------------------------------------------------------- -------------------- -------------------
Net increase in net assets applicable to common shares
resulting from investment operations 1.31 0.64
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (1.00) (0.79)
- ------------------------------------------------------------- -------------------- -------------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital
in excess of par -- (0.03)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares offering costs/underwriting commissions
charged to paid-in capital in excess of par -- (0.10)
- ------------------------------------------------------------- -------------------- -------------------
Total capital share transactions -- (0.13)
- ------------------------------------------------------------- -------------------- -------------------
Net asset value, end of period $14.36 $14.05
- ------------------------------------------------------------- -------------------- -------------------
Market price, end of period $14.30 $14.20
- ------------------------------------------------------------- -------------------- -------------------
TOTAL INVESTMENT RETURN (1) 8.10% 0.05%
- ------------------------------------------------------------- -------------------- -------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $445,679 $435,169
- ------------------------------------------------------------- -------------------- -------------------
Ratio of expenses to average net assets (2)(3)(5) 1.05% 0.99%(4)
- ------------------------------------------------------------- -------------------- -------------------
Ratio of net investment income to average net assets (2)(5) 8.25% 6.05%(4)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares asset coverage per share $66,261 $65,284
- ------------------------------------------------------------- -------------------- -------------------
Portfolio turnover 20% 62%
- ------------------------------------------------------------- -------------------- -------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $0.675 per share.
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day for each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Funds' dividend reinvestment plan. Total investment
return does not reflect brokerage commissions or sales charges. Total
investment return for a period of less than one year is not annualized.
(2) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to the average net assets of common
shareholders.
(3) Inclusive of expenses offset by custody credits earned on cash balances at
the custodian bank. (See note 1.(h) in Notes to Financial Statements).
(4) Annualized.
(5) During the periods indicated above, the Investment Manager waived a portion
of its investment management fee. If such waiver had not been in effect,
the ratio of expenses to average net assets and the ratio of net investment
income to average net assets would have been 1.29% and 8.01%, respectively
for the year ended September 30, 2004 and 1.22% (annualized) and 5.82%
(annualized), respectively, for the period October 31, 2002 (commencement
of operations) through September 30, 2003.
36 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
- --------------------------------------------------------------------------------
For the period
October 31, 2002*
Year ended through
September 30, 2004 September 30, 2003
-------------------- -------------------
Net asset value, beginning of period $13.43 $14.33**
- ------------------------------------------------------------- -------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.23 0.71
- ------------------------------------------------------------- -------------------- -------------------
Net realized and unrealized gain (loss) on investments,
futures contracts and options written 0.51 (0.66)
- ------------------------------------------------------------- -------------------- -------------------
Total from investment operations 1.74 0.05
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.09) (0.06)
- ------------------------------------------------------------- -------------------- -------------------
Net increase (decrease) in net assets applicable to
common shares resulting from investment operations 1.65 (0.01)
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.96) (0.76)
- ------------------------------------------------------------- -------------------- -------------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital
in excess of par -- (0.03)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares offering costs/underwriting commissions
charged to paid-in capital in excess of par -- (0.10)
- ------------------------------------------------------------- -------------------- -------------------
Total capital share transactions -- (0.13)
- ------------------------------------------------------------- -------------------- -------------------
Net asset value, end of period $14.12 $13.43
- ------------------------------------------------------------- -------------------- -------------------
Market price, end of period $13.74 $13.62
- ------------------------------------------------------------- -------------------- -------------------
TOTAL INVESTMENT RETURN (1) 8.22% (4.10)%
- ------------------------------------------------------------- -------------------- -------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $300,860 $285,279
- ------------------------------------------------------------- -------------------- -------------------
Ratio of expenses to average net assets (2)(3)(5) 1.08% 1.01%(4)
- ------------------------------------------------------------- -------------------- -------------------
Ratio of net investment income to average net assets (2)(5) 8.79% 5.63%(4)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares asset coverage per share $65,650 $63,539
- ------------------------------------------------------------- -------------------- -------------------
Portfolio turnover 39% 123%
- ------------------------------------------------------------- -------------------- -------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $0.675 per share.
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day for each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Funds' dividend reinvestment plan. Total investment
return does not reflect brokerage commissions or sales charges. Total
investment return for a period of less than one year is not annualized.
(2) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to the average net assets of common
shareholders.
(3) Inclusive of expenses offset by custody credits earned on cash balances at
the custodian bank. (See note 1.(h) in Notes to Financial Statements).
(4) Annualized.
(5) During the periods indicated above, the Investment Manager waived a portion
of its investment management fee. If such waiver had not been in effect,
the ratio of expenses to average net assets and the ratio of net investment
income to average net assets would have been 1.32% and 8.55% respectively
for the year ended September 30, 2004 and 1.24% (annualized) and 5.40%
(annualized), respectively, for the period October 31, 2002 (commencement
of operations) through September 30, 2003.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 9.30.04 PIMCO Municipal Income Funds III Annual Report 37
PIMCO NEW YORK MUNICIPAL INCOME FUND III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
- --------------------------------------------------------------------------------
For the period
October 31, 2002*
Year ended through
September 30, 2004 September 30, 2003
-------------------- -------------------
Net asset value, beginning of period $14.14 $14.33**
- ------------------------------------------------------------- -------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.19 0.70
- ------------------------------------------------------------- -------------------- -------------------
Net realized and unrealized gain on investments, futures
contracts and options written 0.12 0.08
- ------------------------------------------------------------- -------------------- -------------------
Total from investment operations 1.31 0.78
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.08) (0.06)
- ------------------------------------------------------------- -------------------- -------------------
Net increase in net assets applicable to common shares
resulting from investment operations 1.23 0.72
- ------------------------------------------------------------- -------------------- -------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.96) (0.76)
- ------------------------------------------------------------- -------------------- -------------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital
in excess of par -- (0.03)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares offering costs/underwriting commissions
charged to paid-in capital in excess of par -- (0.12)
- ------------------------------------------------------------- -------------------- -------------------
Total capital share transactions -- (0.15)
- ------------------------------------------------------------- -------------------- -------------------
Net asset value, end of period $14.41 $14.14
- ------------------------------------------------------------- -------------------- -------------------
Market price, end of period $14.30 $13.68
- ------------------------------------------------------------- -------------------- -------------------
TOTAL INVESTMENT RETURN (1) 11.93% (3.77)%
- ------------------------------------------------------------- -------------------- -------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $78,465 $76,975
- ------------------------------------------------------------- -------------------- -------------------
Ratio of expenses to average net assets (2)(3)(5) 1.19% 1.14%(4)
- ------------------------------------------------------------- -------------------- -------------------
Ratio of net investment income to average net assets (2)(5) 8.23% 5.47%(4)
- ------------------------------------------------------------- -------------------- -------------------
Preferred shares asset coverage per share $66,732 $65,942
- ------------------------------------------------------------- -------------------- -------------------
Portfolio turnover 16% 217%
- ------------------------------------------------------------- -------------------- -------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $0.675 per share.
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day for each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Funds' dividend reinvestment plan. Total investment
return does not reflect brokerage commissions or sales charges. Total
investment return for a period of less than one year is not annualized.
(2) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to the average net assets of common
shareholders.
(3) Inclusive of expenses offset by custody credits earned on cash balances at
the custodian bank. (See note 1.(h) in Notes to Financial Statements).
(4) Annualized.
(5) During the periods indicated above, the Investment Manager waived a portion
of its investment management fee. If such waiver had not been in effect,
the ratio of expenses to average net assets and the ratio of net investment
income to average net assets would have been 1.43% and 7.99%, respectively
for the year ended September 30, 2004, and 1.37% (annualized) and 5.24%
(annualized), respectively for the period October 31, 2002 (commencement of
operations) through September 30, 2003.
38 PIMCO Municipal Income Funds III Annual Report 9.30.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO MUNICIPAL INCOME FUNDS III REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Shareholders and Boards of Trustees of
PIMCO Municipal Income Fund III, PIMCO California Municipal Income Fund III and
PIMCO New York Municipal Income Fund III:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets applicable to common shareholders and the financial
highlights present fairly, in all material respects, the financial position of
PIMCO Municipal Income Fund III, PIMCO California Municipal Income Fund III and
PIMCO New York Municipal Income Fund III (collectively hereafter referred to as
the "Funds") at September 30, 2004, the results of each of their operations for
the year then ended, and the changes in each of their net assets applicable to
common shareholders and the financial highlights for the year then ended and for
the period October 31, 2002 (commencement of operations) through September 30,
2003 in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 22, 2004
9.30.04 PIMCO Municipal Income Funds III Annual Report 39
PIMCO MUNICIPAL INCOME FUNDS III PRIVACY POLICY, PROXY VOTING POLICIES AND
PROCEDURES (unaudited)
- --------------------------------------------------------------------------------
PRIVACY POLICY:
- ---------------
OUR COMMITMENT TO YOU
We consider customer privacy to be a fundamental aspect of our relationship with
clients. We are committed to maintaining the confidentiality, integrity, and
security of our current, prospective and former clients' personal information.
We have developed policies designed to protect this confidentiality, while
allowing client needs to be served.
OBTAINING PERSONAL INFORMATION
In the course of providing you with products and services, we may obtain
non-public personal information about you. This information may come from
sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your brokerage
or financial advisory firm, financial adviser or consultant, and/or from
information captured on our internet web sites.
RESPECTING YOUR PRIVACY
We do not disclose any personal or account information provided by you or
gathered by us to non-affiliated third parties, except as required or permitted
by law. As is common in the industry, non-affiliated companies may from time to
time be used to provide certain services, such as preparing and mailing
prospectuses, reports, account statements and other information, conducting
research on client satisfaction, and gathering shareholder proxies. We may also
retain non-affiliated companies to market our products and enter in joint
marketing agreements with other companies. These companies may have access to
your personal and account information, but are permitted to use the information
solely to provide the specific service or as otherwise permitted by law. We may
also provide your personal and account information to your brokerage or
financial advisory firm and/or to your financial adviser or consultant.
SHARING INFORMATION WITH THIRD PARTIES
We do reserve the right to disclose or report personal information to
non-affiliated third parties in limited circumstances where we believe in good
faith that disclosure is required under law, to cooperate with regulators or law
enforcement authorities, to protect our rights or property, or upon reasonable
request by any mutual fund in which you have chosen to invest. In addition, we
may disclose information about you or your accounts to a non-affiliated third
party at your request or if you consent in writing to the disclosure.
SHARING INFORMATION WITH AFFILIATES
We may share client information with our affiliates in connection with servicing
your account or to provide you with information about products and services that
we believe may be of interest to you. The information we share may include, for
example, your participation in our mutual funds or other investment programs,
your ownership of certain types of accounts (such as IRAs), or other data about
your accounts. Our affiliates, in turn, are not permitted to share your
information with non-affiliated entities, except as required or permitted by
law.
IMPLEMENTATION OF PROCEDURES
We take seriously the obligation to safeguard your non-public personal
information. We have implemented procedures designed to restrict access to your
non-public personal information to our personnel who need to know that
information to provide products or services to you. To guard your non-public
personal information, physical, electronic, and procedural safeguards are in
place.
- --------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES:
- -------------------------------------
A description of the policies and procedures that the Funds have adopted to
determine how to vote proxies relating to portfolio securities is available (i)
without charge, upon request, by calling the Funds at (800) 331-1710; (ii) on
the Funds' website at www.pimcoadvisors.com; and (iii) on the Securities and
Exchange Commission's website at www.sec.gov. The Funds did not vote any proxies
relating to portfolio securities held during the twelve months ended June 30,
2004.
40 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III OTHER INFORMATION (unaudited)
- --------------------------------------------------------------------------------
OTHER INFORMATION:
- ------------------
Since September 30, 2003, there have been no: (i) material changes in the Funds'
investment objectives or policies; (ii) changes to the Funds' charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Funds: or (iv) change in the persons primarily responsible for
the day-to-day management of the Funds' portfolio.
9.30.04 PIMCO Municipal Income Funds III Annual Report 41
PIMCO MUNICIPAL INCOME FUNDS III TAX INFORMATION (unaudited)
- --------------------------------------------------------------------------------
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the
Funds to advise shareholders within 60 days of the Funds' tax year end
(September 30, 2004) as to the federal tax status of dividends and distributions
received by shareholders during such tax year. Accordingly, please note that
substantially all dividends paid from net investment income from the Funds
during the tax period ended September 30, 2004 were federally exempt interest
dividends. However, the Funds invested in municipal bonds containing market
discount, whose accretion is taxable. Accordingly, the percentage of dividends
paid from net investment income during the tax period which are taxable were:
Municipal III 2.03%
California Municipal III 1.64%
New York Municipal III 0.64%
Since the Funds' fiscal year is not the calendar year, another notification will
be sent with respect to calendar year 2004. In January 2005, you will be advised
on IRS Form 1099 DIV as to the federal tax status of the dividends and
distributions received during calendar year 2004. The amount that will be
reported, will be the amount to use on your 2004 federal income tax return and
may differ from the amount which must be reported in connection with each Fund's
tax year ended September 30, 2004. Shareholders are advised to consult with
their tax advisers as to the federal, state and local tax status of the income
received from the Funds. In January 2005, an allocation of interest by state
will be provided which may be of value in reducing a shareholder's state or
local tax liability, if any.
42 PIMCO Municipal Income Funds III Annual Report 9.30.04
PIMCO MUNICIPAL INCOME FUNDS III DIVIDEND REINVESTMENT PLAN (unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Funds' Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
dividends, including any capital gain dividends, reinvested automatically in
additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the
"Plan Agent"), unless the shareholder elects to receive cash. An election to
receive cash may be revoked or reinstated at the option of the shareholder. In
the case of record shareholders such as banks, brokers or other nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder as representing the total amount
registered in such shareholder's name and held for the account of beneficial
owners who are to participate in the Plan. Shareholders whose shares are held in
the name of a bank, broker or nominee should contact the bank, whose broker or
nominee elects not to participate on the investor's behalf), will be paid in
cash by check mailed, in the case of direct shareholder, to the record holder by
PFPC Inc., as the Fund's dividend disbursement agent.
Unless you (or your broker or nominee) elects not to participate in the Plan,
the number of Common Shares you will receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value on the payment
date, the Fund will issue new shares at the greater of (i) the net asset
value per Common Share on the payment date or (ii) 95% of the market price
per Common Share on the payment date; or
(2) If Common Shares are trading below net asset value (minus estimated
brokerage commissions that would be incurred upon the purchase of Common
Shares on the open market) on the payment date, the Plan Agent will receive
the dividend or distribution in cash and will purchase Common Shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price on the payment date, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common
Shares issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open market
on or shortly after the payment date, but in no event later than the
ex-dividend date for the next distribution. Interest will not be paid on
any uninvested cash payments.
You may withdraw from the Plan at any time by giving notice to the Plan Agent.
If you withdraw or the Plan is terminated, you will receive a certificate for
each whole share in your account under the Plan and you will receive a cash
payment for any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. The Plan Agent will also furnish each person who
buys Common Shares with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive distributions in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares you
have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvested dividends and distributions are taxed in the same
manner as cash dividends and distributions.
The Funds and the Plan Agent reserve the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Funds reserve the right to amend the Plan to include a service charge payable by
the participants. Additional information about the Plan may be obtained from the
Funds' transfer agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027,
telephone number 1-800-331-1710.
9.30.04 PIMCO Municipal Income Funds III Annual Report 43
PIMCO MUNICIPAL INCOME FUNDS III BOARD OF TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS:
- --------------------------------------------------------------------------------------------------------------------
ROBERT E. CONNOR Corporate Affairs Consultant; Formerly, Senior Vice President, Corporate
1345 Avenue of the Americas Office, Smith Barney, Inc.
New York, NY 10105
Age: 69
Trustee since: 2002
Chairman of the Board of Trustees: Since
2004
Term of office: Expected to stand for
re-election at 2006 annual meeting of
shareholders.
Trustee/Director of 20 funds in Fund
Complex
Trustee of no funds outside of
Fund Complex
PAUL BELICA Director, Student Loan Finance Corp., Education Loans, Inc., Goal
1345 Avenue of the Americas Funding I, Inc., Goal Funding II, Inc. and Surety Loan Funding, Inc.;
New York, NY 10105 Formerly, senior executive and member of the Board of Smith Barney,
Age: 83 Harris Upham & Co.; and the CEO of five State of New York Agencies.
Trustee since: 2002
Term of office: Expected to stand for
re-election at 2005 annual meeting of
shareholders.
Trustee/Director of 20 funds in
Fund Complex
Trustee of no funds outside of
Fund Complex
JOHN J. DALESSANDRO II Formerly, President and Director, J.J. Dalessandro II Ltd., registered
1345 Avenue of the Americas broker-dealer and member of the New York Stock Exchange.
New York, NY 10105
Age: 67
Trustee since: 2002
Term of office: Expected to stand for
re-election at 2004 annual meeting of
shareholders.
Trustee of 15 funds in Fund Complex
Trustee of no funds outside of
Fund Complex
DAVID C. FLATTUM Managing Director, Chief Operating Officer, General Council and member
888 San Clemente Drive, Suite 100 of Management Board, Allianz Dresdner Asset Management of America,
Newport Beach, CA 92660 L.P. ("ADAM"); Formerly, Partner, Latham & Watkins LLP (1998-2001).
Age: 40
Trustee since: 2004
Term of office: Expected to stand for
re-election at 2004 annual meeting of
shareholders
Trustee of 52 funds in Fund Complex
Trustee of no funds outside of Fund
Complex
HANS W. KERTESS President, H Kertess & Co.; Formerly, Managing Director, Royal Bank of
1345 Avenue of the Americas Canada Capital Markets.
New York, NY 10105
Age: 65
Trustee since: 2003
Term of office: Expected to stand for
re-election at 2006 annual meeting of
shareholders.
Trustee of 15 funds in Fund Complex
Trustee of no funds outside of
Fund Complex
R. PETER SULLIVAN III Formerly, Managing Partner, Bear Wagner Specialists LLC (formerly,
1345 Avenue of the Americas Wagner Stott Mercator LLC), specialist firm on the New York Stock
New York, NY 10105 Exchange.
Age: 62
Trustee since: 2003
Term of office: Expected to stand for
re-election at 2004 annual meeting of
shareholders.
Trustee of 14 funds in Fund Complex
Trustee of no funds outside of
Fund Complex
44 PIMCO Municipal Income Funds III Annual Report 9.30.04
TRUSTEES AND PRINCIPAL OFFICERS
Robert E. Connor
Chairman of the Board of Trustees
Paul Belica
Trustee
John J. Dalessandro II
Trustee
David C. Flattum
Trustee
Hans W. Kertess
Trustee
R. Peter Sullivan III
Trustee
Brian S. Shlissel
President & Chief Executive Officer
Newton B. Schott, Jr.
Vice President & Secretary
Mark V. McCray
Vice President
Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Youse Guia
Chief Compliance Officer
Jennifer A. Patula
Assistant Secretary
INVESTMENT MANAGER
PA Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
SUB-ADVISER
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, CA 92660
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
LEGAL COUNSEL
Ropes & Gray LLP
One International Place
Boston, MA 02210-2624
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.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time each Fund may purchase
shares of its common stock in the open market.
Commencing with the Funds fiscal quarter ending December 31, 2004, the Funds
will file complete schedules of portfolio holdings with the Securities and
Exchange Commission (the "Commission") on Form N-Q. Form N-Q will be available
(i) on the Funds' website at www.pimcoadvisors.com (ii) on the Commission's
website at www.sec.gov, and (iii) at the Commission's Public Reference Room
which is located at 450 5th Street N.W. Room 1200, Washington, D.C. 20549, (202)
942-8090.
Information on the Funds is available at www.pimcoadvisors.com or by calling
1-800-331-1710
[PIMCO ADVISORS LOGO]
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant
has adopted a code of ethics (the "Section 406 Standards for
Investment Companies -- Ethical Standards for Principal Executive
and Financial Officers") that applies to the registrant's Principal
Executive Officer and Principal Financial Officer; the registrant's
Principal Financial Officer also serves as the Principal Accounting
Officer. The registrant undertakes to provide a copy of such code of
ethics to any person upon request, without charge, by calling
1-800-331-1710.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's Board has determined
that Mr. Paul Belica, a member of the Board's Audit Oversight Committee is an
"audit committee financial expert," and that he is "independent," for purposes
of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two
fiscal years (the "Reporting Periods") for professional services
rendered by the Registrant's principal accountant (the "Auditor")
for the audit of the Registrant's annual financial statements, or
services that are normally provided by the Auditor in connection
with the statutory and regulatory filings or engagements for the
Reporting Periods, were $61,167 in 2003 and $34,906 in 2004.
b) Audit-Related Fees. The aggregate fees billed in the Reporting
Periods for assurance and related services by the principal
accountant that are reasonably related to the performance of the
audit registrant's financial statements and are not reported under
paragraph (e) of this Item were $28,289 in 2003 and $16,268 in
2004. These services consist of accounting consultations, agreed
upon procedure reports (inclusive of annual review of basic
maintenance testing associated with the Preferred Shares),
attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax compliance,
tax service and tax planning ("Tax Services") were $7,200 in 2003
and $8,000 in 2004. These services consisted of review or
preparation of U.S. federal, state, local and excise tax returns.
d) All Other Fees. There were no other fees billed in the Reporting
Periods for products and services provided by the Auditor to the
Registrant.
e) 1. Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of all audit and permissible non-
audit services by the Auditor for the Registrant, as well as the
Auditor's engagements for non-audit services to the when the
engagement relates directly to the operations and financial
reporting of the Registrant. The Registrant's policy is stated
below.
PIMCO Municipal Income Funds III(THE "FUNDS")
AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE
INDEPENDENT ACCOUNTANTS
The Funds' Audit Oversight Committee ("Committee") is charged with the oversight
of the Funds' financial reporting policies and practices and their internal
controls. As part of this responsibility, the Committee must pre-approve any
independent accounting firm's engagement to render audit and/or permissible
non-audit services, as required by law. In evaluating a proposed engagement by
the independent accountants, the Committee will assess the effect that the
engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to
provided,
the fees to be charged in connection with the services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUNDS
On an annual basis, the Funds' Committee will review and pre-approve the scope
of the audits of the Funds and proposed audit fees and permitted non-audit
(including audit-related) services that may be performed by the Funds'
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy. In addition to the Committee's pre-approval of
services pursuant to this Policy, the engagement of the independent accounting
firm for any permitted non-audit service provided to the Funds will also require
the separate written pre-approval of the President of the Funds, who will
confirm, independently, that the accounting firm's engagement will not adversely
affect the firm's independence. All non-audit services performed by the
independent accounting firm will be disclosed, as required, in filings with the
Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
Semiannual financial statement reviews
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of quarterly review of Basic
Maintenance testing associated with issuance of Preferred Shares and
semiannual report review)
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Funds' independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the
following:
Federal, state and local income tax compliance; and, sales and use
tax compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated
fee for those services does not exceed $75,000. Any such pre-approval shall be
reported to the full Committee at its next regularly scheduled meeting.
PROSCRIBED SERVICES
The Funds' independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or
financial statements of the Funds
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or contribution-
in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND
COMPLEX
The Committee will pre-approve annually any permitted non-audit services to be
provided to PA Fund Management LLC (Formerly, PIMCO Advisors Fund Management
LLC) or any other investment manager to the Funds (but not including any
sub-adviser whose role is primarily portfolio management and is sub-contracted
by the investment manager) (the "Investment Manager") and any entity
controlling, controlled by, or under common control with the Investment Manager
that provides ongoing services to the Funds (including affiliated sub-advisers
to the Funds), provided, in each case, that the engagement relates directly to
the operations and financial reporting of the Funds (such entities, including
the Investment Manager, shall be referred to herein as the "Accounting
Affiliates"). Individual projects that are not presented to the Committee as
part of the annual pre-approval process, may be pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member who is a disinterested trustee under the
Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $100,000. Any such
pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
Although the Committee will not pre-approve all services provided to the
Investment Manager and its affiliates, the Committee will receive an annual
report from the Funds' independent accounting firm showing the aggregate fees
for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit services to a Fund or
Accounting Affiliates, the pre-approval requirement is waived if:
(1) The aggregate amount of all such permitted non-audit services
provided constitutes no more than (i) with respect to such services
provided to the Fund, five percent (5%) of the total amount of
revenues paid by the Fund to its independent accountant during the
fiscal year in which the services are provided, and (ii) with
respect to such services provided to Accounting Affiliates, five
percent (5%) of the total amount of revenues paid to the Fund's
independent accountant by the Fund and the Accounting Affiliates
during the fiscal year in which the services are provided;
(2) Such services were not recognized by the Fund at the time of the
engagement for such services to be non-audit services; and
(3) Such services are promptly brought to the attention of the Committee
and approved prior to the completion of the audit by the Committee
or by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
Committee Chairman or other delegate shall be reported to the full
Committee at its next regularly scheduled meeting.
e) 2. No services were approved pursuant to the procedures
contained in paragraph (C) (7) (i) (C) of Rule 2-01 of
Registration S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to
the Adviser, for the 2003 Reporting Period was $3,572,319 and the
2004 Reporting Period was $2,828,813.
h) Auditor Independence. The Registrant's Audit Oversight
Committee has considered whether the provision of non-audit
services that were rendered to the Adviser which were not
pre-approved is compatible with maintaining the Auditor's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
The Fund has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
audit committee of the Fund is comprised of Robert E. Connor, Paul Belica, John
J. Dalessandro II, Hans W. Kertess and R. Peter Sullivan III.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of the report to shareholders filed
under item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The registrant has delegated the voting of proxies relating to its voting
securities to its sub-adviser, Pacific Investment Management Co. (the
"Sub-Adviser"). The Proxy Voting Policies and Procedures of the Sub-Adviser are
included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES.
TOTAL NUMBER
OF SHARES PURCHASED MAXIMUM NUMBER OF
TOTAL NUMBER AVERAGE AS PART OF PUBLICLY SHARES THAT MAY YET BE
OF SHARES PRICE PAID ANNOUNCED PLANS OR PURCHASED UNDER THE PLANS
PERIOD PURCHASED PER SHARE PROGRAMS OR PROGRAMS
------ ------------ ---------- ------------------- -------------------------
October 2003 N/A 14.05 34,056.3741 N/A
November 2003 N/A N/A N/A N/A
December 2003 N/A N/A N/A N/A
January 2004 N/A N/A N/A N/A
February 2004 N/A N/A N/A N/A
March 2004 N/A N/A N/A N/A
April 2004 N/A 14.51 20,396.3852 N/A
May 2004 N/A N/A N/A N/A
June 2004 N/A N/A N/A N/A
July 2004 N/A N/A N/A N/A
August 2004 N/A N/A N/A N/A
September 2004 N/A N/A N/A N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In January 2004, the
Registrant's Board of Trustees adopted a Nominating Committee Charter governing
the affairs of the Nominating Committee of the Board, which is posted on the
PIMCO Advisors website at www.pimcoadvisors.com. Appendix B to the Nominating
Committee Charter includes "Procedures for Shareholders to Submit Nominee
Candidates," which sets forth the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees. Among other requirements, the
procedures provide that the recommending shareholder must submit any
recommendation in writing to the Registrant to the attention of the Registrant's
Secretary, at the address of the principal executive offices of the Registrant
and that such submission must be received at such offices not less than 45 days
nor more than 75 days prior to the date of the Board or shareholder meeting at
which the nominee would be elected. Any recommmendation must include certain
biographical and other information regarding the candidate and the recommending
shareholder, and must include a written and signed consent of the candidate to
be named as a nominee and to serve as a Trustee if elected. The foregoing
description of the requirements is only a summary and is qualified in its
entirety by reference to Appendix B of the Nominating Committee Charter.
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940, as amended 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 controls or
in factors that could affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS
(a) Exhibit 99.302 Cert. - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(c) Exhibit 99.PROXYPOL - Proxy Voting Policies and Procedures
(d) Exhibit 99.Code Eth - Code of Ethics
Signature
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.
PIMCO Municipal Income Fund III
By /s/ Brian S. Shlissel
- ------------------------
Brian S. Shlissel, President & Chief Executive Officer
Date: December 7, 2004
By /s/ Lawrence G. Altadonna
- ----------------------------
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: December 7, 2004
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 & Chief Executive Officer
Date: December 7, 2004
By /s/ Lawrence G. Altadonna
- ----------------------------
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: December 7, 2004
