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 811-21189
PIMCO New York 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)
Larry A. Shlissel - 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
Date of fiscal year end: September 30
Date of reporting period: March 31
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
----------------------------------------------------
Semi-Annual Report
3.31.04
PIMCO Municipal Income Fund III
PIMCO California Municipal Income Fund III
PIMCO New York Municipal Income Fund III
----------------------------------------------------
[PMX LISTED NYSE LOGO] CONTENTS
Letter to Shareholders .........................1
Performance Summary and Statistics ...........2-4
[PZC LISTED NYSE LOGO] Schedules of Investments ....................5-20
Statements of Assets and Liabilities ..........22
Statements of Operations ......................23
[PYN LISTED NYSE LOGO] Statements of Changes in Net Assets ........24-25
Notes to Financial Statements ..............26-31
Financial Highlights .......................32-34
Annual Shareholder Meeting Results ............35
PIMCO MUNICIPAL INCOME FUNDS III LETTER TO SHAREHOLDERS
May 14, 2004
Dear Shareholder:
We are pleased to provide you with the semi-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 six months ended March 31, 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.
We at the Funds, together with PA Fund Management LLC (formerly PIMCO Advisors
Fund Management LLC), the Funds' investment manager and Pacific Investment
Management Co. LLC, the Funds' sub-adviser, thank you for investing with us. We
remain dedicated to serving your investment needs.
Sincerely,
/s/ Stephen Treadway /s/ Brian S. Shlissel
Stephen Treadway Brian S. Shlissel
Chairman President, Chief Executive Officer
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 1
PIMCO MUNICIPAL INCOME FUND III PERFORMANCE SUMMARY AND STATISTICS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PMX Municipal fixed-income October 31, 2002
securities, the interest
OBJECTIVE: from which is exempt TOTAL NET ASSETS(1):
To provide income exempt from federal income tax. $719.3 million
from federal income tax.
PORTFOLIO MANAGER:
Mark McCray
--------------------------------------------------------------------------------
TOTAL RETURN(2): MARKET PRICE NET ASSET VALUE
--------------------------------------------------------------------------------
Six Months 7.06% 6.75%
1 Year 10.00% 8.62%
Commencement of Operations (10/31/02)
to 3/31/04 4.97% 7.39%
COMMON SHARE PRICE PERFORMANCE: MARKET PRICE/NET ASSET VALUE:
Commencement of Operations (10/31/02) ---------------------------------
to 3/31/04 Market Price $14.68
o Market Price Net Asset Value $14.49
o Net Asset Value Premium to Net Asset Value 1.31%
Market Price Yield(3) 6.79%
[GRAPH OMITTED]
(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 less than one
year is not annualized. Total return for a period 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 March 31, 2004.
2 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III PERFORMANCE SUMMARY AND STATISTICS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PZC Municipal fixed-income October 31, 2002
securities, the interest from
OBJECTIVE: which is exempt from federal TOTAL NET ASSETS(1):
To provide current and California state income $486.3 million
income exempt from tax.
federal and California PORTFOLIO MANAGER:
state income tax. Mark McCray
--------------------------------------------------------------------------------
TOTAL RETURN(2): MARKET PRICE NET ASSET VALUE
--------------------------------------------------------------------------------
Six Months 7.87% 9.02%
1 Year 7.19% 7.98%
Commencement of Operations (10/31/02)
to 3/31/04 2.42% 5.52%
COMMON SHARE PRICE PERFORMANCE: MARKET PRICE/NET ASSET VALUE:
Commencement of Operations (10/31/02) ---------------------------------
to 3/31/04 Market Price $14.19
o Market Price Net Asset Value $14.15
o Net Asset Value Premium to Net Asset Value 0.28%
Market Price Yield(3) 6.77%
[GRAPH OMITTED]
(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 less than one
year is not annualized. Total return for a period 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 per share
dividend payable to common shareholders by the market price per common
share at March 31, 2004.
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 3
PIMCO NEW YORK MUNICIPAL INCOME FUND III PERFORMANCE SUMMARY AND STATISTICS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PYN Municipal fixed-income October 31, 2002
securities, the interest from
OBJECTIVE: which is exempt from federal, TOTAL NET ASSETS(1):
To provide current income New York state and New York $126.4 million
exempt from federal, City income tax.
New York state and PORTFOLIO MANAGER:
New York City income tax. Mark McCray
--------------------------------------------------------------------------------
TOTAL RETURN(2): MARKET PRICE NAV
--------------------------------------------------------------------------------
Six Months 11.04% 6.63%
1 Year 14.37% 10.20%
Commencement of Operations (10/31/02)
to 3/31/04 4.80% 7.64%
COMMON SHARE PRICE PERFORMANCE: NET ASSET VALUE/MARKET PRICE:
Commencement of Operations (10/31/02) ---------------------------------
to 3/31/04 Market Price $14.69
o at Market Price Net Asset Value $14.59
o at Net Asset Value Premium to Net Asset Value 0.69%
Market Price Yield(3) 6.54%
[GRAPH OMITTED]
(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 less than one
year is not annualized. Total return for a period 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 per share
dividend payable to common shareholders by the market price per common
share at March 31, 2004.
4 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES--94.3%
ALABAMA--1.6%
$ 9,560 Birmingham, GO, 5.00%, 12/1/27-12/1/32, Ser. B (AMBAC) Aaa/AAA $ 9,884,762
1,500 Colbert Cnty., Northwest Health Care Auth., Health Care
Facs. 5.75%, 6/1/27 Baa3/NR 1,475,370
-----------
11,360,132
-----------
ALASKA--1.8%
State Housing Finance Corp.,
11,400 5.00%, 12/1/33-12/1/39, Ser. A Aaa/AAA 11,508,600
1,000 5.25%, 6/1/32, Ser. C (MBIA) Aaa/AAA 1,014,790
-----------
12,523,390
-----------
ARIZONA--0.6%
2,200 Health Facs. Auth. Hospital Syst. Rev., 7.00%, 12/1/25 NR/BBB 2,416,172
1,500 Maricopa Cnty. Pollution Control Corp., Pollution Control
Rev., 5.05%, 5/1/29 (AMBAC) Aaa/AAA 1,562,430
-----------
3,978,602
-----------
CALIFORNIA--6.8%
48,585 Golden State Tobacco Securitization Corp., Tobacco Settlement
Rev., 6.25%-6.75%, 6/1/33-6/1/39, Ser. 2003 A-1 Baa2/BBB 47,758,191
-----------
COLORADO--4.4%
El Paso Cnty., CP,
4,555 5.00%, 12/1/23-12/1/27, Ser. A (AMBAC) Aaa/AAA 4,748,305
3,225 5.00%, 12/1/23-12/1/27, Ser. B (AMBAC) Aaa/AAA 3,366,228
1,500 Garfield Cnty. School Dist. Re-2, GO, 5.00%, 12/1/25 (FSA) Aaa/NR 1,563,015
3,000 La Plata Cnty. School Dist. No. 9-R, Durango, GO, 5.25%,
11/1/23-11/1/25 (MBIA) Aaa/NR 3,206,150
4,000 Saddle Rock Met. Dist., GO, 5.35%, 12/1/31 (Radian) NR/AA 4,118,640
3,500 School Mines Aux. Facs. Rev., 5.00%, 12/1/37 (AMBAC) Aaa/AAA 3,608,920
9,955 Springs Utilities Rev., 5.00%, 11/15/30, Ser. B Aa2/AA 10,364,350
-----------
30,975,608
-----------
FLORIDA--6.0%
8,000 Highlands Cnty., Health Facs. Auth., Rev., 5.25%, 11/15/23, Ser. B A3/A 8,177,440
2,500 Hillsborough Cnty. Industrial Dev. Auth., Hospital Rev., 5.25%,
10/1/34, Ser. B Baa1/NR 2,554,325
1,485 Julington Creek Plantation Community Dev. Dist., Assessment
Rev., 5.00%, 5/1/29 (MBIA) Aaa/AAA 1,549,880
1,000 Orange Cnty., Housing Finance Auth. Multifamily Rev., 5.25%,
1/1/28, Ser. G (FNMA) Aaa/NR 1,028,860
15,000 Pinellas Cnty., Health Facs. Auth. Rev., 5.50%, 11/15/33 A1/NR 15,631,800
7,500 South Miami Health Facs. Auth., Hospital Rev., 5.25%, 11/15/33 Aa3/A+ 7,701,900
5,615 Tampa, Water & Sewer Rev., 5.00%, 10/1/26, Ser. A Aa2/AA 5,859,589
-----------
42,503,794
-----------
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 5
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
GEORGIA--0.6%
$ 4,000 Griffin Combined Public Utility Rev., 5.00%, 1/1/32 (AMBAC) Aaa/AAA $ 4,151,280
------------
IDAHO--1.0%
6,750 State Building Auth. Building Rev., 5.00%, 9/1/33-9/1/43, Ser. A
(XLCA) Aaa/AAA 6,976,593
------------
ILLINOIS--8.2%
2,250 Chicago, GO, 5.00%, 1/1/31, Ser. A (MBIA) Aaa/AAA 2,312,325
Chicago Board of Education, GO,
500 zero coupon, 12/1/28, Ser. A (FGIC) Aaa/AAA 140,345
5,000 5.00%, 12/1/31, Ser. C (FSA) Aaa/AAA 5,137,250
4,000 Chicago Park Dist. GO, 5.00%, 1/1/29, Ser. D (FGIC) Aaa/AAA 4,109,680
7,000 Chicago Motor Fuel Tax Rev., 5.00% 1/1/33, Ser. A (AMBAC) Aaa/AAA 7,213,640
5,056 Chicago, Special Assessment, 6.625%-6.75%, 12/1/22-12/1/32 NR/NR 5,190,910
2,500 Chicago Water Rev., 5.00% 11/1/31 (AMBAC) Aaa/AAA 2,568,075
2,500 Cook Cnty., GO, 5.125%, 11/15/26, Ser. A (FGIC) Aaa/AAA 2,584,850
9,325 Educational Facs. Auth. Rev., 5.00%-5.25%, 7/1/33-7/1/41, Ser. A Aa1/AA 9,705,461
1,175 Health Facs. Auth., Rev., Elmurst Memorial Healthcare,
5.50%, 1/1/22 A2/NR 1,231,341
9,045 Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
5.25%, 6/15/42 (MBIA) Aaa/AAA 9,515,792
4,300 Round Lake, Special Tax Rev., 6.70%, 3/1/33 NR/NR 4,559,290
3,050 University, Rev., 5.00%, 4/1/30, Ser. A (AMBAC) Aaa/AAA 3,129,514
------------
57,398,473
------------
INDIANA--4.0%
8,035 Bond Bank, 5.00%, 2/1/33, Ser. A (FSA) Aaa/AAA 8,190,397
3,000 Brownsburg, 1999 School Bluiding Corp., 5.25% 3/15/25, Ser. A
(FSA) Aaa/AAA 3,216,810
1,375 Fort Wayne Pollution Control Rev., 6.20%, 10/15/25. Baa1/BBB 1,467,469
5,000 Indianapolis Local Public Improvement Board, Tax Allocation,
5.00%, 2/1/29, Ser. G (MBIA) Aaa/AAA 5,172,700
4,500 Michigan City Area Wide School Building Corp., Rev.,
zero coupon, 1/15/21-1/15/22 (FGIC) Aaa/AAA 1,950,240
1,000 Plainfield Parks Facs. Corp. Lease Rent Rev., 5.00%,
1/15/22 (AMBAC) Aaa/AAA 1,046,310
3,500 State Dev. Finance Auth. Pollution Control Rev, 5.00%
3/1/30 (AMBAC) Aaa/AAA 3,545,500
3,455 Valparaiso, Middle Schools Building Corp. Rev., 5.00%,
7/15/24 (MBIA) Aaa/AAA 3,594,167
------------
28,183,593
------------
KENTUCKY--0.9%
5,000 Dev. Finance Auth. Hospital Facs. Rev., 6.00%, 10/1/19 A3/A 5,669,650
1,000 Economic Dev. Finance Auth. Hospital Facs. Rev., 5.25%, 10/1/30 A1/AA- 1,028,260
------------
6,697,910
------------
6 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
LOUISIANA--1.1%
$ 5,000 Public Facs. Auth. Rev., 5.50%, 5/15/32, Ser. B A3/NR $ 5,144,000
2,595 Tobacco Settlement Financing Corp., 5.875%, 5/15/39, Ser. 2001B Baa2/BBB 2,355,196
------------
7,499,196
------------
MASSACHUSETTS--3.6%
1,000 State Dev. Finance Agcy. Rev., 5.75%, 7/1/33 NR/BBB 1,024,790
7,000 State Health & Educational Facs. Auth. Rev., 5.125%, 7/15/37,
Ser. FF Aaa/AAA 7,333,620
4,910 State Housing Finance Agcy., Housing Rev., 5.125%, 6/1/43,
Ser. H Aa3/AA- 5,000,393
3,225 State Water Pollution Abatement Trust, 5.00%, 8/1/32, Ser. 8 Aaa/AAA 3,340,229
8,055 State Water Resources Auth., 5.00%, 8/1/32, Ser. J (FSA) Aaa/AAA 8,354,163
------------
25,053,195
------------
MICHIGAN--7.3%
3,000 Detroit City School District, 5.00%, 5/1/33, Ser. B (FGIC) Aaa/AAA 3,108,360
10,000 Detroit Water Supply Syst., 5.00%, 7/1/34, Ser. B (MBIA) Aaa/AAA 10,328,000
5,000 State Building Auth., Rev., 5.00%, 10/15/26, Ser. III (FSA) Aaa/AAA 5,193,300
175 State Hospital Finance Auth. Rev., Detroit Medical Center,
5.25%, 8/15/23 Ba3/B 120,428
4,000 State Hospital Finance Auth. Rev., Henry Ford Health Syst.,
5.00%, 3/1/17 A1/A- 4,136,360
20,000 State Hospital Finance Auth. Rev., Trinity Health Credit,
5.375%, 12/1//30 Aa3/AA- 20,819,800
5,980 State Hospital Finance Auth. Rev., Oakwood Group, 5.75%-6.00%,
4/1/22-4/1/32, Ser. A A2/A 6,247,753
1,000 Technological University, 5.00%, 10/1/33 (XLCA) Aaa/AAA 1,035,880
------------
50,989,881
------------
MINNESOTA--0.9%
2,400 Upsala Independent School Dist. No. 487, GO, 5.00%,
2/1/28 (FGIC) Aaa/Aaa 2,511,360
4,000 Willmar, GO, 5.00%, 2/1/32 (FSA) Aaa/NR 4,152,920
------------
6,664,280
------------
MISSISSIPPI--0.6%
4,250 Business Finance Corp., Pollution Control Rev., 5.875%-5.90%,
4/1/22-5/1/22 Ba1/BBB- 4,305,085
------------
MISSOURI--3.0%
4,000 Bi State Dev. Agcy., Missouri Illinois Dist., 5.00%, 10/1/32 (FSA) Aaa/AAA 4,165,600
4,365 State Environmental Improvement & Energy Resources Auth.,
Water Pollution Control Rev., 5.00%, 7/1/23, Ser. B Aaa/NR 4,595,079
7,500 State Health & Educational Facs. Auth., Health Facs. Rev.,
6.25%, 12/1/30 A2/A 8,008,350
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 7
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
MISSOURI (CONCLUDED)
$ 1,350 St. Louis Industrial Dev. Auth., Housing Dev. Rev., 5.20%, 1/20/36
(GNMA) NR/AAA $ 1,382,157
3,000 St. Louis Industrial Dev. Auth. Rev., 5.125%,
12/20/29-12/20/30 (GNMA) NR/AAA 3,074,970
------------
21,226,156
------------
MONTANA--1.7%
11,250 Forsyth Pollution Control Rev., 5.00%, 3/1/31 (AMBAC) Aaa/AAA 11,740,837
------------
NEVADA--0.6%
3,355 Henderson Health Care Fac. Rev., 5.125%, 7/1/28 Baa2/BBB 3,235,193
1,000 Henderson Local Improvement Dist., 5.80%, 3/1/23 NR/NR 1,039,720
------------
4,274,913
------------
NEW HAMSPHIRE--0.7%.
4,750 Manchester Water Works, 5.00%, 12/1/28-12/1/34 (FGIC) Aaa/AAA 4,935,080
------------
NEW JERSEY--3.6%
1,540 Camden Cnty., Improvement Auth. Rev., 6.00%, 2/15/27 Ba2/NR 1,431,584
300 Economic Dev. Auth. Industrial Dev. Rev., 7.00%, 10/1/14 Ba3/NR 305,352
2,000 Health Care Facs. Financing Auth. Rev., Somerset Medical Center,
5.50%, 7/1/33 Baa2/NR 3,150,690
3,000 Health Care Facs. Financing Auth. Rev., Pascack Valley Hospital,
6.625%, 7/1/36 NR/BB+ 2,027,280
2,500 Middlesex Cnty. Polution Control Auth., Rev., 5.75%, 9/15/32 Baa3/BBB 2,521,525
2,000 South Port Corp., Rev., 5.10%, 1/1/33 NR/A 2,059,240
1,500 State Educational Fac. Auth. Rev., 6.00%, 7/1/25, Ser. D NR/NR 1,561,320
12,755 Tobacco Settlement Financing Corp., Rev., 6.00%-6.75%,
6/1/24-6/1/43 Baa2/BBB 12,530,180
------------
25,587,171
------------
NEW MEXICO--0.1%
1,000 Farmington Pollution Control Rev., 5.80%, 4/1/22 Baa2/BBB 1,023,450
------------
NEW YORK--5.4%
Metropolitan Transportation Auth. Rev.,
5,000 5.00%, 11/15/32, Ser. A (FGIC) Aaa/AAA 5,208,950
10,000 5.25%, 11/15/32, Ser. B A2/A 10,555,500
3,800 State Dorm Auth. Rev., 5.00%, 3/15/32 NR/AA 3,921,600
11,590 State Dorm Auth. Rev., Memorial Sloan-Kettering Center, 5.00%,
7/1/34, Ser. 1 Aa2/AA 11,943,727
4,000 State Dorm Auth. Rev., St. Barnabas, 5.125%, 2/1/22, Ser. A
(FHA) Aaa/AAA 4,251,600
2,000 State Environmental Facs. Corp. Clean Water & Drinking Rev.,
5.00%, 6/15/28 Aaa/AAA 2,086,740
------------
37,968,117
------------
8 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--1.4%
$ 2,000 Charlotte-Mecklenberg Hospital Auth., Healthcare Syst. Rev.,
5.00%, 1/15/33, Ser. A Aa3/AA $ 2,052,740
Eastern Municipal Power Agcy, Power Syst. Rev.,
3,795 5.375%, 1/1/17, Ser. C Baa3/BBB 4,046,609
4,000 5.125%, 1/1/23-1/1/26, Ser. D Baa3/BBB 4,007,900
------------
10,107,249
------------
OHIO--0.4%
2,500 Lorian Cnty. Hospital Rev., 5.375%, 10/1/30 A1/AA- 2,573,950
------------
PENNSYLVANIA--2.7%
4,350 Allegeny Cnty. Hospital Dev. Auth. Rev., 9.25%, 11/15/30, Ser. B B2/B 4,832,502
1,500 Cumberland Cnty. Muni Auth. Retirement Community Rev., 7.25%,
1/1/35, Ser. A NR/NR 1,533,360
3,250 Delaware River Joint Toll Bridge, Commission Bridge Rev.,
5.00%, 7/1/28 A2/A- 3,331,965
3,000 Lehigh Cnty General Purpose Auth. Rev., 5.375%, 8/15/33 Baa2/BBB 3,036,090
6,300 St. Mary Hospital Auth., Bucks Cnty., 5.00%, 12/1/28
(pre-refunded @ 101, 6/1/08) (a) Aa2/AA 6,344,037
------------
19,077,954
------------
PUERTO RICO--0.3%
2,200 Electric Power Auth., Power Rev., 5.125%, 7/1/29, Ser. NN A3/A- 2,302,850
------------
SOUTH CAROLINA--1.0%
6,700 Jobs Economic Dev. Auth. Economic Dev. Rev., 5.625%, 11/15/30 A3/A- 6,843,916
------------
TENNESSEE--4.0%
1,250 Knox Cnty. Health Educational & Housing Facs. Board, Hospital
Facs. Rev., 5.25%, 10/1/30 A1/AA- 1,292,363
23,500 Memphis Electric Syst. Rev., 5.00%, 12/1/12, Ser. A Aaa/AAA 26,504,475
------------
27,796,838
------------
TEXAS--12.0%
1,955 Caddo Mills Independent School Dist., GO, 5.25%, 8/15/39 (PSF) NR/AAA 2,062,838
4,135 Canyon Independent School Dist., GO, 5.00%, 2/15/28, Ser. A
(PSF) NR/AAA 4,284,480
1,300 Comal Cnty. Health Facs. Dev., 6.25%, 2/1/32 Baa2/BBB 1,335,308
Denton Independent School Dist. GO,
33,000 zero coupon, 8/15/26-8/15/31 (PSF) Aaa/AAA 8,335,180
10,115 5.00%, 8/15/33 Aaa/AAA 10,428,059
Harris Cnty. Health Facs. Dev. Corp. Rev., Ser. A,
2,750 5.375%, 2/15/26 NR/AA- 2,833,160
5,000 5.375%, 7/1/29 (MBIA) Aaa/AAA 5,240,850
Harris Cnty. Rev.,
4,400 5.125% 8/15/31 Aa1/AA+ 4,580,268
19,500 5.125% 8/15/32 (FSA) Aaa/AAA 20,257,770
4,005 Houston, GO, 5.00%, 3/1/25 (MBIA) Aaa/AAA 4,150,301
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 9
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
--------------------------------------------------------------------------------------------------------------
TEXAS (CONCLUDED)
$ 5,000 Houston Water & Sewer Syst Rev., 5.00%, 12/1/30, Ser. A (FSA) Aaa/AAA $ 5,162,800
1,800 Irving Independent School Dist., GO, 5.00% 2/15/28 (PSF) Aaa/AAA 1,865,070
7,000 Judson Independent School Dist., GO, 5.00%, 2/1/30 (PSF) Aaa/NR 7,194,950
415 Leander Independent School Dist., GO, 5.00%, 8/15/32 (PSF) NR/AAA 428,135
1,500 North Thruway Auth., Dallas North Thruway Syst. Rev., 5.00%,
1/1/33, Ser. A (AMBAC) Aaa/AAA 1,547,025
2,105 Northwest Harris Cnty. Muni Utility Dist. No. 16, GO,
5.30%, 10/1/29 (Radian) NR/AA 2,177,307
2,500 San Antonio Water Rev., 5.00%, 5/15/32, Ser. A (FSA) Aaa/AAA 2,573,775
------------
84,457,276
------------
UTAH--0.9%
4,100 Salt Lake Cnty Hospital Rev., 5.125%, 2/15/33 (AMBAC) Aaa/AAA 4,248,625
1,750 Weber Cnty., Hospital Rev., 5.00%, 5/15/30 Aa2/AA+ 1,760,605
------------
6,009,230
------------
WASHINGTON--7.0%
6,375 Chelan Cnty. Public Utility Dist No. 001 Cons. Rev., 5.125%,
7/1/33, Ser. C (AMBAC) Aaa/AAA 6,619,609
15,000 King Cnty Sewer Rev., 5.00%, 1/1/35, Ser. A (FSA) Aaa/AAA 15,385,950
3,000 Port Seattle, Rev., 5.00%, 9/1/24 (FGIC) Aaa/AAA 3,116,670
24,845 Tobacco Settlement Auth., Tobacco Settlement Rev.,
6.50%, 6/1/26 Baa2/BBB 24,435,803
------------
49,558,032
------------
WISCONSIN--0.1%
560 Badger Tobacco Asset Securitization Corp. 6.00%, 6/1/17 Baa2/BBB 545,558
------------
Total Municipal Bonds & Notes (cost-$638,954,408) 663,047,780
------------
VARIABLE RATE NOTES (b)(c)(g)--4.1%
ILLINOIS--0.3%
1,990 Dev. Finance Auth., Gas Supply Rev., 23.91%, 2/1/33 (AMBAC) NR/NR 2,366,289
------------
MICHIGAN--1.6%
4,990 Detroit Sewer Disposal Rev., 24.58%, 7/1/11 (FSA) NR/AAA 5,355,468
4,725 Detroit Water Supply Syst. Rev., 27.32%, 1/1/11 (MBIA) NR/AAA 5,872,986
------------
11,228,454
------------
TEXAS--1.1%
2,450 Dallas Area Rapid Transit Rev., 19.96%, 12/1/32 (FGIC) NR/NR 2,855,744
1,870 Mansfield Independent School Dist., GO, 23.78%, 2/15/23 (PSF) NR/NR 2,301,989
2,060 University Rev., 20.46%, 8/15/33 NR/NR 2,471,588
------------
7,629,321
------------
10 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (concluded)
Principal
Amount Credit Ratings
(000) (Moody's/ S&P) Value
-------------------------------------------------------------------------------------------------------
WASHINGTON--1.1%
$ 1,520 King Cnty. Sewer Rev., 24.43%, 7/1/11 (FGIC) NR/NR $ 1,848,001
3,065 Port Tacoma, GO, 26.09%, 12/1/33 (AMBAC) NR/NR 3,800,263
1,510 Seattle Drain & Wastewater Rev., 24.58%, 7/1/10 (FGIC) NR/NR 1,808,693
------------
7,456,957
------------
Total Variable Rate Notes (cost-$26,066,555) 28,681,021
------------
VARIABLE RATE DEMAND NOTES (b)(d)--0.5%
NEW YORK--0.5%
New York City Municipal Water Finance Auth. Water &
Sewer Syst. Rev.,
2,730 1.10%, 4/1/04, Ser. C (FGIC) VMIG1/A-1+ 2,730,000
1,000 1.10%, 4/1/04, Ser. G (FGIC) VMIG1/A-1+ 1,000,000
------------
Total Variable Rate Notes Demand Notes (cost-$3,730,000) 3,730,000
------------
U.S. TREASURY BILLS (e)--1.5%
10,480 0.94%-0.96%, 6/3/04-6/17/04 (cost--$10,461,536) 10,461,731
------------
TOTAL INVESTMENTS, BEFORE CALL OPTIONS WRITTEN (cost-$679,212,499)--100.4% 705,920,532
------------
CALL OPTIONS WRITTEN (f)--(0.4)%
Contracts U.S. Treasury Bond Futures, Chicago Board of Trade
-----------
(920) Strike Price $114, expires 6/21/04 (1,753,750)
(920) Strike Price $116, expires 6/21/04 (934,375)
------------
Total call options written (premiums received-$1,590,045) (2,688,125)
------------
TOTAL INVESTMENTS, NET OF CALL OPTIONS WRITTEN (cost-$677,622,454+)--100.0% $703,232,407
------------
--------------------------------------------------------------------------------
+ The cost of securities for federal income tax purposes is $679,212,499.
Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $27,295,036 aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $587,003; net unrealized appreciation for federal
income tax purposes is $26,708,033.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 11
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS & NOTES--85.6%
$ 14,925 ABAG Fin. Auth. Rev., Odd Fellows Home,
5.20%-5.35%, 11/15/22-11/15/32 NR/BBB $ 15,202,201
17,100 Alameda Cnty. Tob. Securitization Agy.,
5.875%-6.00%, 6/1/35-6/1/42 Baa2/NR 15,385,905
2,135 Burbank Pub. Fin. Auth. Rev., San Fernando Redev.,
5.50%, 12/1/28-12/1/33 NR/BBB 2,157,658
2,000 Butte-Glenn Community College GO,
5.00%, 8/1/26, Ser. A (MBIA) Aaa/NR 2,084,620
2,000 Capistrano Univ. School Dist., Community Fac. Dist., Special Tax,
6.00%, 9/1/32 NR/NR 2,056,280
1,000 Cathedral City Pub. Fin. Auth. Rev., 5.00%, 8/1/33, Ser A (MBIA) Aaa/AAA 1,035,840
5,765 Ceres School Dist. GO, zero coupon, 8/1/28-8/1/29 (FGIC) Aaa/AAA 1,457,793
3,895 Chula Vista Community Fac. Dist., Special Tax.,
5.75%-6.20%, 9/1/26-9/1/33 NR/NR 3,958,179
1,000 Chula Vista Improvement Board Act 1915, Special Assessment,
6.15%, 9/2/29 NR/NR 1,025,520
8,000 Contra Costa County Public Financing Auth. Tax Collection Rev.
5.625%, 8/1/33 NR/BBB 8,212,320
3,775 Cucamonga School Dist., CP,
5.20%, 6/1/27 NR/A- 3,849,368
5,205 Eastern California Municipal Water Dist., Special Tax,
5.75%-6.10%, 9/1/27-9/1/33 NR/NR 5,238,733
500 Franklin-McKinley School Dist., GO,
5.00%, 8/1/27, Ser. B (FSA) Aaa/AAA 520,765
5,000 Fremont Califonia Community Facilities Dist., Special Tax,
6.30%, 9/1/31 NR/NR 5,133,950
9,500 Fresno School Dist., GO,
6.00%, 8/1/26, Ser. A (MBIA) Aaa/AAA 11,584,680
9,380 Glendale Elec. Works Rev.,
5.00%, 2/1/27-2/1/32 (MBIA) Aaa/AAA 9,733,980
56,490 Golden St. Tobacco Securitization Corp. Rev.,
6.25%-6.75%, 6/1/33-6/1/39 Baa2/BBB 55,619,579
2,000 Health Facilities Financing Auth. Rev.,
6.25%, 8/15/35, Ser. A A1/A+ 2,252,760
16,000 Health Facilities Financing Auth. Rev.,
5.00%, 3/1/33-11/1/33, Ser. A Aaa/AAA 16,207,280
2,750 Infrastructure & Economic Development Bank Rev.,
5.25%, 10/1/33 Aa3/NR 2,872,485
2,500 Institute of Technology Educational Fac. Auth. Rev.,
5.00%, 10/1/32, Ser. A Aaa/AAA 2,594,800
Kaiser Assistance Corp., Infrastructure & Economic Dev. Rev.,
8,000 5.55%, 8/1/31, Ser. A NR/A 8,397,040
3,000 5.50%, 8/1/31, Ser. B A2/A 3,137,760
5,000 Kaiser Permanente Health Facs. Fin. Auth. Rev.,
5.00%, 10/1/18, Ser. B A3/A 5,401,650
12 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
$ 3,725 La Mesa-Spring Valley School Dist. GO,
5.00%, 8/1/26, Ser. A (FGIC) Aaa/AAA $ 3,868,599
1,400 La Quinta California Redevelopment Agency, Tax Allocation,
5.10%, 9/1/31(AMBAC) Aaa/AAA 1,453,984
4,070 Lancaster Financing Auth. Tax Allocation Rev.,
4.75%, 8/1/33-2/1/34 (MBIA) Aaa/AAA 4,082,535
825 Lee Lake Water Dist. Community Facilities Dist., Special Tax,
6.125, 9/1/32 NR/NR 847,646
Los Angeles Unified School Dist. GO,
3,000 5.00%, 1/1/28, Ser. A (MBIA) Aaa/AAA 3,148,740
7,650 5.125%, 1/1/27, Ser. E Aaa/AAA 7,959,519
5,000 Los Osos Community Wastewater Svcs., Dist. 1,
5.00%, 9/2/33 (MBIA) NR/AAA 5,177,900
2,455 Loyola-Marymount Educational Facs. Auth. Rev.,
zero coupon, 10/1/34 (MBIA) Aaa/NR 493,774
1,000 Lynwood Unified School Dist.,
5.00%, 8/1/27, Ser. A (FSA) Aaa/NR 1,041,530
2,180 Murrieta Valley Unified School Dist., Special Tax,
6.40%, 9/1/24 NR/NR 2,264,475
3,550 Northern California Ret. Officers, State Health Fac. Fin. Auth.
Rev., 5.125%-5.250%, 1/1/22-1/1/26 NR/BBB 3,607,680
5,000 Oakland CA, GO,
5.00%, 1/15/33, Ser. A (MBIA) Aaa/AAA 5,175,650
2,530 Oakland Redev. Agcy., Tax Allocation,
5.25%, 9/1/27-9/1/33 NR/A- 2,577,326
5,000 Orange Cnty. Community Facilities Dist., Special Tax,
5.55%, 8/15/33, Ser. A NR/NR 5,022,850
5,000 Orange Cnty. Unified School Dist., CP,
4.75%, 6/1/29 Aaa/AAA 5,000,400
1,000 Orange Cnty. Water Dist., CP,
5.00%, 8/15/28-8/15/34 (MBIA) Aaa/AAA 1,040,900
2,000 Palm Desert Fin. Auth. Rev., Tax Allocation,
5.00%, 4/1/25, Ser. A (MBIA) Aaa/AAA 2,092,840
1,410 Ponoma Public Fin. Auth. Rev.,
5.00%, 12/1/37 (MBIA) Aaa/AAA 1,458,969
3,385 Poway Unified School Dist., Special Tax,
6.05%-6.125%, 9/1/25-9/1/33 NR/NR 3,460,927
7,680 Rowland Unified School Dist., GO,
5.00%, 8/1/28, Ser. B (FSA) Aaa/AAA 7,993,037
1,500 Sacramento City Fin. Auth. Rev.,
6.25%, 9/1/23, Ser. A NR/NR 1,551,645
480 San Diego Unified School Dist. GO,
5.00%, 7/1/26, Ser. C (FSA) Aaa/AAA 500,155
19,425 San Diego Unified School Dist. GO,
5.00%, 7/1/26-7/1/28, Ser. E (FSA) Aaa/AAA 20,227,766
1,500 San Diego Univ. Auxiliary Foundation Organization,
5.00%, 3/1/27, Ser. A (MBIA) Aaa/AAA 1,554,420
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 13
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
$ 3,000 San Jose Libraries & Parks Proj., GO,
5.125%, 9/1/31 Aa1/AA+ $ 3,128,370
4,225 San Mateo Cnty. Community College Dist.,
5.00%, 9/1/26, Ser. A (FGIC) Aaa/AAA 4,389,310
16,085 Santa Ana School Dist. GO,
zero coupon, 8/1/26-8/1/32, Ser. B (FGIC) Aaa/AAA 4,166,144
1,250 Santa Clara Valley Transportation Auth. Sales Tax Rev.,
5.00%, 6/1/26, Ser. A (MBIA) Aaa/AAA 1,292,438
6,000 Santa Margarita Community Fac. Water Dist., Special Tax,
6.25%, 9/1/29 NR/NR 6,197,305
1,205 Sequoia Unified High School Dist. GO,
5.00%, 7/1/23-7/1/24 (MBIA) Aaa/NR 1,265,864
11,175 Simi Valley Community Dev. Agy., Tax Allocation,
5.00%, 9/1/25-9/1/30 (FGIC) Aaa/AAA 11,594,019
4,250 Sonoma Cnty Jr. College Dist.,
5.00%, 8/1/27, Ser. A (FSA) Aaa/AAA 4,426,503
1,000 Sonoma Cnty Water Agy. Rev.,
5.00%, 7/1/32, Ser. A (MBIA) Aaa/AAA 1,036,440
South Tahoe Joint Powers Financing Auth.,
2,500 5.125%, 10/1/09 NR/NR 2,572,800
4,425 5.45%, 10/1/33 NR/BBB- 4,437,036
14,900 Southern CA. Public Power Auth.,
5.00%, 7/1/33 (AMBAC) Aaa/AAA 15,445,638
4,095 State Dept. Vet. Affairs Home Purchase Rev.,
5.35%, 12/1/27, Ser. A (AMBAC) Aaa/AAA 4,242,829
State Public Works Board Lease Rev.,
5,385 5.00%, 10/1/19 A3/BBB- 5,532,010
4,600 5.00%, 4/1/28, Ser. A Aa2/AA- 4,700,188
1,105 5.375 4/1/28 Baa2/BBB- 1,062,535
6,300 Statewide Community Dev. Auth. CP, Internext Group,
5.50%, 11/15/33, Ser. A NR/BBB 6,458,886
3,505 Statewide Community Dev. Auth. CP, Internext Group,
5.375%, 4/1/30 NR/BBB- 3,430,519
Statewide Community Dev. Auth. Rev.,
15,000 5.50%, 10/1/33, Ser. A A3/A 15,692,400
10,000 5.50% 8/15/34, Ser. B A1/AA- 10,372,200
2,500 7.25%, 10/1/33 NR/NR 2,578,750
1,795 Sunnyvale Water & Wastewater Rev.,
5.00%, 10/1/26 (AMBAC) Aaa/AAA 1,858,435
2,000 Tamalpais Unified High School Dist. GO,
5.00%, 8/1/26 (MBIA) Aaa/AAA 2,077,100
2,000 Temecula Public Financing Auth.,
6.00%, 9/1/33, Ser. A NR/NR 2,050,560
2,950 Torrance Memorial Med. Ctr. Hosp. Rev.,
5.50%, 6/1/31 A1/A+ 3,057,587
4,000 Vernon Electric Syst. Rev.,
5.50%, 4/1/33 Aaa/BBB+ 4,143,080
14 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
$ 2,500 William S Hart Union High School Dist., Special Tax,
6.00%, 9/1/33 NR/NR $ 2,557,525
2,750 Woodland Fin. Auth. Lease Rev.,
5.00%, 3/1/32 Aaa/AAA 2,867,370
Total California Municipal Bonds & Notes (cost-$397,789,899) ------------
PUERTO RICO MUNICIPAL BONDS & NOTES--1.0% 409,358,254
PUERTO RICO--1.0% ------------
1,800 Commonwealth Hwy. & Transmission Auth. Rev.,
5.375%, 7/1/36, Ser. D Baa1/A 1,929,060
1,500 Electric Power Auth. Power Rev.,
5.125%, 7/1/29, Ser NN A3/A- 1,570,125
1,080 Gov't Fac. Public Buildings Auth. Rev.,
5.25%, 7/1/36, Ser. D Baa1/A- 1,136,689
------------
Total Puerto Rico Municipal Bonds & Notes (cost-$4,437,589) 4,635,874
------------
CALIFORNIA VARIABLE RATE NOTES (b)(c)(g)--6.4%
1,465 California Infrastructure & Economic Development Bank Rev.,
20.09%, 7/1/29 (AMBAC) NR/NR 1,748,800
Los Angeles Unified School Dist., GO, RITES,
Clark Cnty. School Dist.,
2,090 22.72%, 1/1/11 Ser. 1763-A (MBIA) NR/NR 3,365,025
1,745 20.22%, 1/1/23 Ser. 1763-B (MBIA) NR/NR 1,844,343
2,020 Los Angeles Water and Power Rev.,
18.80%, 1/1/25 NR/NR 2,370,894
800 Orange Cnty. Water Dist., CP,
25.78%, 1/1/25 (MBIA) NR/NR 1,004,592
710 Pajaro Valley Unified School Dist., GO,
26.12%, 8/1/11 NR/NR 770,080
1,170 Pasadena Water Rev.,
20.89%, 6/1/27 (FGIC) NR/NR 1,404,702
1,545 Sacramento Cnty. Water Financing Auth. Rev.,
26.12%, 6/1/11 (AMBAC) NR/NR 1,938,419
1,150 Sacramento Municipal Utility Dist.,
25.95%, 2/15/11 (MBIA) NR/NR 1,235,169
1,725 San Diego Community College Dist.,
26.11%, 5/1/11 (FSA) NR/NR 1,862,655
1,130 San Marcos Public Facilities Auth. Tax Allocation Rev.,
25.92%, 2/1/11 (FGIC) NR/NR 1,419,585
1,130 San Marcos Public Facilities Auth. Tax Allocation Rev.,
25.92%, 8/1/11 (FGIC) NR/NR 1,213,371
1,680 Southern CA. Public Power Auth.,
27.26%, 7/1/11 (AMBAC) NR/NR 1,803,043
6,980 University of CA. Rev.,
25.76%, 9/1/31-9/1/34 (FSA) NR/NR 8,622,921
------------
Total California Variable Rate Notes (cost-$33,134,556) 30,603,599
------------
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 15
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (concluded)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
CALIFORNIA VARIABLE RATE DEMAND NOTES (b)(d)--6.0%
$1,000 Anaheim Union High School Dist., CP,
1.00%, 4/1/04 (FSA) Aaa/AAA $ 1,000,000
1,750 Bay Area Toll Auth., Toll Bridge Rev.,
0.99%, 4/1/04 (AMBAC) VMIG1/A-1+ 1,750,000
3,750 California Pollution Control Financing Auth.,
0.95%, 4/1/04 VMIG1/A-1+ 3,750,000
2,000 East Bay Muni. Util. Dist. Water Syst. Rev.,
1.01%, 4/7/04, Ser. A (FSA) VMIG1/A-1+ 2,000,000
4,800 Irvine Ranch Water Dist.,
0.96%-1.10%, 4/1/04 NR/A-1+ 4,800,000
1,800 Irvine Unified School Dist., Special Tax,
1.10%, 4/1/04 VMIG1/NR 1,800,000
1,500 Los Angeles County Metropolitan Transportation Auth., Sales Tax,
1.00%, 4/1/04, Ser. A Aaa/AAA 1,500,000
1,225 Los Angeles Water and Power Waterworks Rev.,
1.10%, 4/1/04 Aa3/AA 1,225,000
1,000 Long Beach Unified School Dist.,
1.00%, 4/1/04 (AMBAC) Aaa/NR 1,000,000
Metropolitan Water Dist., Southern CA Waterworks Rev.,
1,000 1.00%, 4/1/04, Ser. A (AMBAC) VMIG1/A-1+ 1,000,000
1,000 1.10%, 4/1/04, Ser C-1 VMIG1/A-1+ 1,000,000
1,500 1.03%, 4/1/04, Ser C-2 VMIG1/A-1+ 1,500,000
3,100 Orange Cnty. Sanitation Dist. CP,
1.10%, 4/1/04 (AMBAC) VMIG1/A-1+ 3,100,000
3,350 Sutter Health Fac. Auth. Rev.,
1.05%, 4/1/04, Ser. B (AMBAC) VMIG1/A-1+ 3,350,000
------------
Total California Variable Rate Demand Notes (cost-$25,050,000) 28,775,000
------------
U.S. TREASURY BILLS (e)-1.4%
6,685 0.94%-0.97%, 6/3/04-6/17/04 (cost-$6,673,320) Aaa/AAA 6,673,409
------------
TOTAL INVESTMENTS BEFORE CALL OPTIONS WRITTEN (cost-$467,085,364+)--100.4% 480,046,136
------------
CALL OPTIONS WRITTEN (f)--(0.4)%
Contracts
-------
U.S. Treasury Bond Futures, Chicago Board of Trade
(583) Strike Price $116, expires 5/21/04 (592,109)
(583) Strike Price $114, expires 5/21/04 (1,111,344)
Total call options written (premium received-$1,007,605) ------------
(1,703,453)
------------
TOTAL INVESTMENTS, NET OF CALL OPTIONS WRITTEN (cost-$466,077,759)--100% $478,342,683
------------
--------------------------------------------------------------------------------
+ The cost of securities for federal income tax purposes is $467,085,364.
Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $15,520,820; aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $2,560,048; net unrealized appreciation for federal
income tax purposes is $12,960,772.
16 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
NEW YORK MUNICIPAL BONDS & NOTES--83.2%
$ 2,800 East Rochester Housing Auth. Rev., St. Mary's Residence Proj.,
5.375%, 12/20/22 (LC:GNMA) NR/AAA $ 3,007,676
1,000 Long Island Power Auth., Elec. Syst. Rev., 5.00%, 9/1/27, Ser. C Baa1/A- 1,017,980
5,000 Metropolitan Transportation Auth. Rev., 5.00%, 11/15/31,
Ser. F (MBIA) Aaa/AAA 5,194,700
1,000 Monroe Tobacco Securitization Corp., Tobacco Settlement Rev.,
6.375%, 6/1/35 Baa2/BBB 1,011,610
2,000 Nassau Cnty. Tobacco Settlement Corp., 6.60%, 7/15/39 Baa2/BBB- 2,033,560
10,445 New York City GO, Ser. I, 5.00%-5.375%, 3/1/27-3/1/33 A2/A 10,730,957
1,000 New York City Muni. Water Auth. Rev., 5.00%, 6/15/29, Ser. F Aa2/AA 1,034,720
5,000 New York City Muni. Water Fin. Auth., Water & Sewer Syst.
Rev., 5.00%, 6/15/32, Ser. A Aa2/AA 5,164,300
1,000 New York City Muni. Water Fin. Auth., Water & Sewer Syst.
Rev., 5.00%, 6/15/35, Ser. C Aa2/AA 1,037,940
1,000 Niagara Falls Public Water & Sewer Syst. Rev., 5.00%, 7/15/34,
Ser. A (MBIA) Aaa/AAA 1,040,600
6,105 Sachem Central School Dist., GO, 5.00%, 6/15/29-6/15/30 (MBIA) Aaa/AAA 6,361,527
2,000 Schenectady Indl. Dev. Agy., Union College Fac. Rev., 5.00%
7/1/32, Ser. A (AMBAC) Aaa/NR 2,080,920
2,995 State Community Tobacco Settlement Trust, 5.625%, 6/1/35 Baa2/BBB 2,869,719
2,000 State Dormitory Auth. Rev., Barnard College, 4.75%, 7/1/35
(AMBAC) Aaa/NR 2,009,540
2,000 State Dormitory Auth. Rev., Columbia Univ., 5.00%, 7/1/24, Ser. A Aaa/AAA 2,105,680
1,000 State Dormitory Auth. Revs., FHA-NY & Presbyterian Hospital,
4.75%, 8/1/27 (AMBAC) Aaa/AAA 1,008,030
2,250 State Dormitory Auth. Rev., Jewish Board Family & Children,
5.00%, 7/1/33 (AMBAC) Aaa/AAA 2,341,035
4,500 State Dormitory Auth. Revs., Lenox Hill Hospital, 5.50%, 7/1/30 A3/NR 4,727,520
6,040 State Dormitory Auth. Rev., Long Island Univ., 5.00%,
9/1/23-9/1/32, Ser. A (Radian) NR/AA 6,218,165
3,000 State Dormitory Auth. Rev., Lutheran Medical Hosp., 5.00%,
8/1/31 (MBIA) Aaa/AAA 3,119,130
3,750 State Dormitory Auth. Revs., Memorial Sloan-Kettering Center,
5.00%, 7/1/34, Ser. 1 Aa2/AA 3,864,450
4,000 State Dormitory Auth. Rev., Mount Saint Mary College, 5.00%,
7/1/27-7/1/32 (Radian) NR/AA 4,116,000
1,000 State Dormitory Auth. Rev., New York Univ., 5.00%, 7/1/31,
Ser. 2 (AMBAC) Aaa/AAA 1,033,650
6,150 State Dormitory Auth. Rev., North General Hosp., 5.00%, 2/15/25 NR/AA- 6,295,570
1,000 State Dormitory Auth. Revs., North Shore L.I. Jewish Group,
5.50%, 5/1/33 A3/NR 1,036,810
3,600 State Dormitory Auth. Rev., Personal Income Tax, 5.00%, 3/15/32 NR/AA 3,715,200
3,740 State Dormitory Auth. Rev., Saint Barnabas, 5.00%, 2/1/31,
Ser. A (AMBAC) Aaa/AAA 3,881,522
1,000 State Dormitory Auth. Rev., School Dist. Financing, 5.00%,
10/1/30, Ser. D (MBIA) Aaa/AAA 1,039,240
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 17
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (continued)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
$ 1,500 State Dormitory Auth. Rev., Teachers College, 5.00%, 7/1/32
(MBIA) Aaa/NR $ 1,555,230
3,120 State Dormitory Auth. Revs., Winthrop Univ., 5.50%-5.75%,
7/1/28-7/1/32, Ser. A Baa1/NR 3,270,407
1,900 State Urban Development Corp. Rev., 5.00%, 3/15/33, Ser. C-1 A1/AA 1,953,770
5,000 Triborough Bridge & Tunnel Auth. Rev., 5.00% 11/15/32, Ser. B Aa3/AA- 5,173,000
2,000 Warren & Washington Cnty. Indl. Dev. Agy. Fac. Rev., 5.00%,
12/1/35, Ser. A (FSA) Aaa/AAA 2,068,000
1,250 Westchester Cnty. Indl Dev. Agency. Continuing Care, 6.50%, 1/1/34 NR/NR 1,268,963
------------
Total New York Municipal Bonds & Notes (cost-$100,642,349) 104,387,121
------------
OTHER MUNICIPAL BONDS & NOTES--7.5%
CALIFORNIA--4.4%
5,560 Golden St. Tobacco Securization Corp. Rev., 6.75%,
6/1/39, Ser. 2003 A-1 Baa2/BBB 5,485,774
------------
DISTRICT OF COLUMBIA--0.1%
175 Tobacco Settlement Financing Corp., 6.50%, 5/15/33 Baa2/BBB 168,366
------------
PUERTO RICO--2.6%
2,280 Children Trust Fund Puerto Rico Tobacco Settlement Rev.,
5.50%-5.625%, 5/15/39-5/15/43 Baa2/BBB 2,234,311
1,000 Electric Power Auth. Rev., 5.125%, 7/1/29, Ser. NN A3/A- 1,046,750
------------
3,281,061
------------
SOUTH CAROLINA--0.3%
370 Tobacco Settlement Auth., Tobacco Settlement Rev., 6.375%,
5/15/30, Ser. B Baa2/BBB 350,875
------------
WASHINGTON--0.1%
135 Tobacco Settlement Auth., Tobacco Settlement Rev.,
6.625%, 6/1/32 Baa2/BBB 131,215
------------
Total Other Municipal Bonds & Notes (cost-$8,449,083) 9,417,291
------------
NEW YORK VARIABLE RATE NOTES (b)(c)(g)--8.0%
1,555 Metropolitan Transportation Auth. Rev., RITES 16.19%, 11/15/32,
Ser. 862 (FGIC) Aaa/NR 1,814,934
1,205 State Dormitory Auth. Revs., RITES, 21.91508%, 7/1/26 Aaa/AAA 1,487,235
State Environmental Facs. Corp., State Clean Water & Drinking,
1,005 19.86315%, 7/15/23, RITES-A-PA-1165 NR/AAA 1,067,220
1,560 19.86315%, 7/15/27, RITES-B-PA-1165 NR/AAA 1,658,764
1,845 State Housing Fin. Agy., Personal Income Tax., 16.18%,
3/15/33, Ser. 859 NR/AA 1,845,000
2,000 Triborough Bridge & Tunnel Auth. Rev., 8.72%, 11/15/32
(MBIA) (h) NR/NR 2,167,400
------------
Total New York Variable Rate Notes (cost-$9,100,698) 10,040,553
------------
18 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (concluded)
Principal
Amount Credit Ratings
(000) (Moody's/S&P) Value
--------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (e)--1.7%
$ 2,125 0.916%--0.9425%, 6/3/04--6/17/04 (cost $2,121,074) Aaa/AAA $ 2,121,105
------------
TOTAL INVESTMENTS, BEFORE CALL OPTIONS WRITTEN (cost-$120,313,204+)--100.4% 125,966,070
------------
CALL OPTIONS WRITTEN (f)--(0.4)%
Contracts U.S. Treasury Bond Futures, Chicago Board of Trade
---------
(196) Strike Price $114, expires 5/21/04 (373,625)
(196) Strike Price $116, expires 5/21/04 (199,063)
------------
Total call options written (premium received-$338,749) (572,688)
------------
TOTAL INVESTMENTS, NET OF CALL OPTONS WRITTEN (cost-$119,974,455)--100% $125,393,382
------------
--------------------------------------------------------------------------------
+ The cost basis of securities for federal income tax purposes is
$120,313,204. Aggregate gross unrealized appreciation for securities in
which there is an excess of value over tax cost is $5,743,346; aggregate
gross unrealized depreciation for securities in which there is an excess
of tax cost over value is $90,480; net unrealized appreciation for
federal income tax purposes is $5,652,866.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 19
PIMCO NEW YORK MUNICIPAL INCOME FUND III SCHEDULE OF INVESTMENTS
March 31, 2004 (unaudited) (concluded)
--------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS:
(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 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) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, typically to qualified institutional investors. At March 31,
2004, these securities amounted to $28,681,021 or 4.1% of total
investments, $30,603,599 or 6.4% of total investments and $10,040,553 or
8.0% of total investments, respectively, for Municipal III, California
Municipal III and New York Municipal III.
(d) Maturity date shown is date of next call.
(e) All or partial principal amount segregated as initial margin on futures
contracts.
(f) Non-income producing security.
(g) Residual Interest Municipal Bonds. The interest rate shown bears an inverse
relationship to the interest rate on another security or the value of an
index.
--------------------------------------------------------------------------------
GLOSSARY
ABAG-Association of Bay Area Government
AMBAC-insured by American Municipal Bond Assurance Corp.
CP-Certificates of Participation
FGIC-insured by insured 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.
RITES-Residual Interest Tax Exempt Securities
XLCA--insured by XL Capital Assurance
20 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
This page intentionally left blank.
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 21
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
CALIFORNIA NEW YORK
MUNICIPAL III MUNICIPAL III MUNICIPAL III
--------------- --------------- ---------------
ASSETS:
Investments, at value (cost-$679,212,499, $467,085,364
and $120,313,204, respectively) $705,920,532 $480,046,136 $125,966,070
--------------------------------------------------------- ------------ ------------ ------------
Cash 9,361,557 1,806,134 129,634
--------------------------------------------------------- ------------ ------------ ------------
Receivable for investments sold -- 2,236,376 1,122,792
--------------------------------------------------------- ------------ ------------ ------------
Interest receivable 11,742,015 7,229,919 1,715,242
--------------------------------------------------------- ------------ ------------ ------------
Prepaid expenses 22,507 10,408 5,007
--------------------------------------------------------- ------------ ------------ ------------
Total Assets 727,046,611 491,328,973 128,938,745
--------------------------------------------------------- ------------ ------------ ------------
LIABILITIES:
Options written, at value (premiums received-$1,590,045,
$1,007,605, $338,749, respectively) 2,688,125 1,703,453 572,688
--------------------------------------------------------- ------------ ------------ ------------
Payable for investments purchased -- -- 1,040,718
--------------------------------------------------------- ------------ ------------ ------------
Dividends payable to common and preferred shareholders 2,601,643 1,718,987 437,699
--------------------------------------------------------- ------------ ------------ ------------
Payable for variation margin on futures contracts 1,968,313 1,322,063 398,062
--------------------------------------------------------- ------------ ------------ ------------
Investment management fees payable 307,480 208,177 54,032
--------------------------------------------------------- ------------ ------------ ------------
Accrued expenses 134,990 82,309 50,869
--------------------------------------------------------- ------------ ------------ ------------
Total Liabilities 7,700,551 5,034,989 2,554,068
--------------------------------------------------------- ------------ ------------ ------------
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 $449,346,060 $301,293,984 $ 79,384,677
--------------------------------------------------------- ------------ ------------ ------------
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 440,317,989 302,119,322 77,161,822
--------------------------------------------------------- ------------ ------------ ------------
Dividends in excess of net investment income (963,288) (562,629) (269,205)
--------------------------------------------------------- ------------ ------------ ------------
Accumulated net realized loss (9,591,169) (8,095,065) (1,491,507)
--------------------------------------------------------- ------------ ------------ ------------
Net unrealized appreciation of investments, futures
contracts and options written 19,582,218 7,832,143 3,983,513
--------------------------------------------------------- ------------ ------------ ------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $449,346,060 $301,293,984 $ 79,384,677
--------------------------------------------------------- ------------ ------------ ------------
Common Shares Outstanding 31,014,777 21,287,764 5,442,280
--------------------------------------------------------- ------------ ------------ ------------
NET ASSET VALUE PER COMMON SHARE $ 14.49 $ 14.15 $ 14.59
--------------------------------------------------------- ------------ ------------ ------------
22 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF OPERATIONS
For the six months ended March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
CALIFORNIA NEW YORK
MUNICIPAL III MUNICIPAL III MUNICIPAL III
--------------- --------------- ---------------
INTEREST INCOME:
Interest $ 20,343,497 $ 14,466,537 $ 3,639,604
--------------------------------------------------------- ------------- ------------ ------------
EXPENSES:
Investment management fees 2,336,452 1,574,576 411,294
--------------------------------------------------------- ------------- ------------ ------------
Auction agent fees and commissions 350,757 236,938 61,726
--------------------------------------------------------- ------------- ------------ ------------
Shareholder reports 65,844 30,425 3,157
--------------------------------------------------------- ------------- ------------ ------------
Custodian and accounting agent fees 64,502 66,095 34,526
--------------------------------------------------------- ------------- ------------ ------------
Audit and tax services 23,374 18,891 10,470
--------------------------------------------------------- ------------- ------------ ------------
Trustees' fees and expenses 19,347 14,843 8,428
--------------------------------------------------------- ------------- ------------ ------------
Transfer agent fees 11,740 13,053 14,284
--------------------------------------------------------- ------------- ------------ ------------
New York Stock Exchange listing fees 10,688 10,351 6,673
--------------------------------------------------------- ------------- ------------ ------------
Legal fees 10,055 4,817 4,430
--------------------------------------------------------- ------------- ------------ ------------
Insurance expense 8,672 6,461 2,461
--------------------------------------------------------- ------------- ------------ ------------
Investor relations 284 1,982 1,715
--------------------------------------------------------- ------------- ------------ ------------
Miscellaneous 2,472 3,246 3,030
--------------------------------------------------------- ------------- ------------ ------------
Total expenses 2,904,187 1,981,678 562,194
--------------------------------------------------------- ------------- ------------ ------------
Less: investment management fees waived (539,181) (363,364) (94,914)
--------------------------------------------------------- ------------- ------------ ------------
custody credits earned on cash balances (831) (1,779) (796)
--------------------------------------------------------- ------------- ------------ ------------
Net expenses 2,364,175 1,616,535 466,484
--------------------------------------------------------- ------------- ------------ ------------
NET INVESTMENT INCOME 17,979,322 12,850,002 3,173,120
--------------------------------------------------------- ------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
---------------------------------------------------------
Investments 1,553,120 411,322 42,917
--------------------------------------------------------- ------------- ------------ ------------
Futures contracts (10,581,560) (5,872,968) (2,585,435)
--------------------------------------------------------- ------------- ------------ ------------
Options written 1,836,078 85,722 189,929
--------------------------------------------------------- ------------- ------------ ------------
Net change in unrealized appreciation/depreciation of
investments, futures contracts and options written 19,615,439 19,008,107 4,403,173
--------------------------------------------------------- ------------- ------------ ------------
Net realized and unrealized gain on investments, futures
contracts and options written 12,423,077 13,632,183 2,050,584
--------------------------------------------------------- ------------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
INVESTMENT OPERATIONS 30,402,399 26,482,185 5,223,704
--------------------------------------------------------- ------------- ------------ ------------
DIVIDENDS ON PREFERRED SHARES FROM NET
INVESTMENT INCOME (1,240,100) (866,531) (201,390)
--------------------------------------------------------- ------------- ------------ ------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS RESULTING FROM INVESTMENT OPERATIONS $ 29,162,299 $ 25,615,654 $ 5,022,314
--------------------------------------------------------- ------------- ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 23
PIMCO MUNICIPAL INCOME FUNDS III STATEMENTS OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
--------------------------------------------------------------------------------
MUNICIPAL III
---------------------------------------
Six months For the period
ended October 31, 2002*
March 31, 2004 through
(unaudited) September 30, 2003
---------------- --------------------
INVESTMENT OPERATIONS:
Net investment income $ 17,979,322 $ 24,191,132
----------------------------------------------------------------- ------------- -------------
Net realized gain (loss) on investments, futures contracts and
options written (7,192,362) (2,398,807)
----------------------------------------------------------------- ------------- -------------
Net change in unrealized appreciation/depreciation of
investments, futures contracts and options written 19,615,439 (33,221)
----------------------------------------------------------------- ------------- -------------
Net increase in net assets resulting from investment operations 30,402,399 21,759,104
----------------------------------------------------------------- ------------- -------------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (1,240,100) (2,035,317)
----------------------------------------------------------------- ------------- -------------
Net increase (decrease) in net assets applicable to common
shareholders resulting from investment operations 29,162,299 19,723,787
----------------------------------------------------------------- ------------- -------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (15,463,967) (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 478,492 2,038,323
----------------------------------------------------------------- ------------- -------------
Net increase from capital share transactions 478,492 439,754,804
----------------------------------------------------------------- ------------- -------------
Total increase in net assets applicable to common shareholders 14,176,824 435,069,233
----------------------------------------------------------------- ------------- -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 435,169,236 100,003
----------------------------------------------------------------- ------------- -------------
End of period (including dividends in excess of net investment
income of $963,288 and $2,238,543; $562,269 and
$2,329,413; $269,205 and $628,641; respectively) $ 449,346,060 $ 435,169,236
----------------------------------------------------------------- ------------- -------------
COMMON SHARES ISSUED AND REINVESTED:
Issued -- 30,829,000
----------------------------------------------------------------- ------------- -------------
Issued in reinvestment of dividends 34,057 144,739
----------------------------------------------------------------- ------------- -------------
NET INCREASE 34,057 30,973,739
----------------------------------------------------------------- ------------- -------------
* Commencement of operations
24 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CALIFORNIA MUNICIPAL INCOME III NEW YORK MUNICIPAL III
--------------------------------------- --------------------------------------
Six months For the period Six months For the period
ended October 31, 2002* ended October 31, 2002*
March 31, 2004 through March 31, 2004 through
(unaudited) September 30, 2003 (unaudited) September 30, 2003
---------------- -------------------- ---------------- -------------------
$ 12,850,002 $ 15,092,799 $ 3,173,120 $ 3,831,249
------------- ------------- ------------ ------------
(5,375,924) (2,719,141) (2,352,589) 861,082
------------- ------------- ------------ ------------
19,008,107 (11,175,965) 4,403,173 (419,660)
------------- ------------- ------------ ------------
26,482,185 1,197,693 5,223,704 4,272,671
------------- ------------- ------------ ------------
(866,531) (1,326,256) (201,390) (330,543)
------------- ------------- ------------ ------------
25,615,654 (128,563) 5,022,314 3,942,128
------------- ------------- ------------ ------------
(10,216,687) (16,095,956) (2,612,294) (4,129,347)
------------- ------------- ------------ ------------
-- 302,744,550 -- 77,698,800
------------- ------------- ------------ ------------
-- (1,850,000) -- (470,000)
------------- ------------- ------------ ------------
-- (897,594) -- (323,602)
------------- ------------- ------------ ------------
615,561 1,407,016 -- 156,675
------------- ------------- ------------ ------------
615,561 301,403,972 -- 77,061,873
------------- ------------- ------------ ------------
16,014,528 285,179,453 2,410,020 76,874,654
------------- ------------- ------------ ------------
285,279,456 100,003 76,974,657 100,003
------------- ------------- ------------ ------------
$ 301,293,984 $ 285,279,456 $ 79,384,677 $ 76,974,657
------------- ------------- ------------ ------------
-- 21,134,000 -- 5,424,000
------------- ------------- ------------ ------------
45,680 101,103 -- 11,299
------------- ------------- ------------ ------------
45,680 21,235,103 -- 5,435,299
------------- ------------- ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 25
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PIMCO Municipal Income Fund III ("Municipal III"), PIMCO California Municipal
Income Fund III ("California Municipal III") and PIMCO New York Municipal
Income Fund III ("New York Municipal III"), 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"). PA Fund
Management LLC (the "Investment Manager," formerly known as PIMCO Advisors Fund
Management LLC), serves as the Funds' Investment Manager and is an indirect,
wholly-owned subsidiary of ADAM. ADAM 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 which 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 which 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 option on December 13, 2002. These shares were all issued at
$15.00 per share before 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 current period. 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. Debt securities
are valued daily by an independent pricing service approved by the Board of
Trustees. Prices obtained from independent pricing services use information
provided by market makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics. The
value of the Funds' investments is determined at the close of regular trading
(normally, 4:00 p.m., Eastern Time) on the New York Stock Exchange ("NYSE") on
each day the NYSE is open. Short-term investments maturing in sixty days or
less are valued at amortized cost, which approximates market value. Certain
fixed income securities for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the Board of
Trustees, with
26 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reference to fixed income securities whose prices are more readily obtainable.
The prices used by the Funds to value securities may differ from the value that
would be realized if the securities were sold.
(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 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)
The Funds invest in Residual Interest Municipal Bond ("RIBS") whose interest
rates bear an inverse relationship to the interest rate on another security or
the value of an index. RIBS are created by dividing the income stream provided
by the underlying bonds to create two securities, one short-term and one
long-term. The interest rate on the short-term component is reset by an index
or auction process 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 typically will involve
greater risk than an investment in a fixed rate bond.
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 27
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
(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 AND 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 will receive 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 $934,581,
$629,830 and $164,518 in connection with sub-advisory services for Municipal
III, California Municipal III and New York Municipal III, respectively, for the
six months ended March 31, 2004.
3. INVESTMENTS IN SECURITIES
For the six months ended March 31, 2004, purchases and sales of investments,
other than short-term securities, were:
California New York
Municipal III Municipal III Municipal III
----------- --------------- --------------- --------------
Purchases $77,948,924 $108,565,872 $2,172,270
Sales 20,201,027 117,205,170 10,228,867
(a) Futures contracts outstanding at March 31, 2004:
# of Expiration Unrealized
Fund Type Contracts Date Depreciation
--------------------------------------------------------------- --------- ---------- ------------
Municipal III Short: U.S. Treasury 30 Year Bond 2,863 6/21/04 6,027,735
California Municipal III Short: U.S. Treasury 30 Year Bond 1,923 6/21/04 4,432,781
New York Municipal III Short: U.S. Treasury 30 Year Bond 579 6/21/04 1,435,414
28 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
3. INVESTMENTS IN SECURITIES (CONCLUDED)
(b) Transactions in options written for the six months ended March 31, 2004:
Contracts Premiums
-------------------------------------------------------------------------------------
Municipal III:
--------------
Options outstanding, September 30, 2003 1,958 $ 2,219,267
Options written 7,882 6,813,866
Options expired (266) (178,437)
Option terminated in closing purchase transactions (3,916) (4,526,206)
Options exercised (3,818) (2,738,445)
-------- ------------
Options outstanding, March 31, 2004 1,840 $ 1,590,045
======== ============
California Municipal III:
-------------------------
Options outstanding, September 30, 2003 1,161 $ 1,256,068
Options written 3,751 3,909,726
Option expired (318) (248,932)
Options terminated in closing purchase transactions (1,161) (1,256,068)
Options exercised (2,267) (2,653,189)
-------- ------------
Options outstanding, March 31, 2004 1,166 $ 1,007,605
======== ============
New York Municipal III:
-----------------------
Options outstanding, September 30, 2003 274 $ 221,207
Options written 1,395 1,422,341
Options expired (75) (50,311)
Options terminated in closing purchase transactions (548) (575,523)
Options exercised (654) (678,965)
-------- ------------
Options outstanding, March 31, 2004 392 $ 338,749
======== ============
4. 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.
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 29
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
4. AUCTION PREFERRED SHARES (CONCLUDED)
For the six months ended March 31, 2004, the annualized dividend rates ranged
from:
High Low At 3/31/04
--------------------------------------------------------------------------------
Municipal III:
--------------
Series A 1.75% 0.73% 1.080%
Series B 1.75% 0.45% 1.099%
Series C 1.30% 0.73% 1.080%
Series D 1.75% 0.45% 1.130%
Series E 1.75% 0.45% 1.160%
California Municipal III:
-------------------------
Series A 1.75% 0.80% 0.90%
Series B 1.75% 0.80% 0.90%
New York Municipal III:
-----------------------
Series A 1.29% 0.45% 0.90%
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.
5. SUBSEQUENT COMMON DIVIDEND DECLARATIONS
On April 1, 2004, the following dividends were declared to common shareholders
payable May 3, 2004 to shareholders of record on April 16, 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
On May 3, 2004, the following dividends were declared to common shareholders
payable June 1, 2004 to shareholders of record on May 14, 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
6. LEGAL PROCEEDINGS
On February 12, 2004, the staff of the Securities and Exchange Commission (the
"Commission") informed the Investment Manager that it intended to recommend
that the Commission bring civil and administrative actions against the
Investment Manager and one of its investment advisory affiliates seeking a
permanent injunction against violations of certain provisions of the federal
securities laws, disgorgement plus prejudgment interest and civil penalties in
connection with the Commission staff's investigation of "market timing" and
related trading activities in certain open-end investment companies advised by
the Investment Manager (the "Subject Funds"). On February 17, 2004, the
Attorney General of New Jersey filed a complaint alleging, among other things,
that the Sub-Adviser and certain of its affiliates had failed to disclose that
they improperly allowed certain hedge funds to engage in "market timing" in the
Subject Funds and certain other mutual funds advised by the Sub-Adviser. The
complaint seeks injunctive relief, civil monetary penalties, restitution and
disgorgement of profits. On May 6, 2004, the Commission filed a complaint in
the U.S. District Court in the Southern District of New York alleging that the
Investment Manager, certain of its affiliates, and Stephen J. Treadway (the
Chief Executive Officer of the Investment Manager as well as the Chairman of
the Funds) had among other things, violated and/or aided and abetted violations
of various antifraud provisions of the federal securities laws in connection
with the alleged "market timing"
30 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
PIMCO MUNICIPAL INCOME FUNDS III NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (unaudited)
--------------------------------------------------------------------------------
6. LEGAL PROCEEDINGS (CONCLUDED)
arrangements disussed above. The complaint seeks injunctive relief,
disgorgement plus pre-judgment interest, monetary penalties, and an order
permanently enjoining the defendants from serving as investment advisers,
principal underwriters, officers, directors, or members of any advisory boards
to any registered investment companies.
The proceedings described above do not allege that any inappropriate activity
took place in the Funds and the Funds are not named in the proceedings.
If the New Jersey Attorney General or the Commission were to obtain a court
injunction against the Investment Manager, the Sub-Adviser, certain of their
affiliates and/or Mr. Treadway 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 such a case, the Investment Manager
and the Sub-Adviser would in turn seek exemptive relief from the Commission, as
contemplated by the Investment Company Act, although there is no assurance that
such exemptive relief would be granted. The Commission also has the power by
order to prohibit the Investment Manager, the Sub Adviser and certain of their
affiliates from serving as investment advisers and underwriters, although to
date it has not exercised such powers with respect to market timing
arrangements involving other mutual fund complexes.
Since February, 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates, various investment companies advised by the Investment
Manager and the Sub-Adviser and their boards of trustees have been named as
defendants in multiple 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. The lawsuits have been commenced as putative class
actions on behalf of investors who purchased, held or redeemed shares of the
specified funds during specified periods or as derivative actions on behalf of
the specified funds. The lawsuits generally relate to the same facts that are
the subject of the regulatory proceedings discussed above. The lawsuits seek
unspecified compensatory damages plus interest and, in some cases, punitive
damages, the rescission of investment advisory contracts and/or the return of
fees paid under those contracts and restitution. The Funds have been named in
two of the class action lawsuits, one filed in the Southern District of New
York and one filed in the District of New Jersey. The Investment Manager and
the Sub-Adviser believe that other similar lawsuits may be filed in Federal or
State Courts naming the Investment Manager, the Sub-Adviser, various investment
companies they advise (which may include the Funds), their boards or trustees
and/or their affiliates.
In November 2003, the Commission settled an enforcement action against an
unaffiliated broker-dealer relating to the undisclosed receipt of fees from
certain mutual fund companies in return for preferred marketing of their funds
and announced that it would be investigating mutual funds and their
distributors generally with respect to compensation arrangements relating to
the sale of mutual fund shares. In that connection, the Investment Manager, the
Sub-Adviser and certain of their affiliates are under investigation by the
Commission relating to revenue-sharing arrangements and the use of brokerage
commissions to recognize brokers effecting sales of open-end investment
companies advised by the Investment Manager, the Sub-Adviser and their
affiliates. In addition, the Attorney General of the State of California has
publicly announced an investigation into the brokerage recognition and
revenue-sharing arrangements of these open-end investment companies.
Although it is not possible to predict what, if any, effect the foregoing will
have on the market for the Funds' shares, the Investment Manager and the
Sub-Adviser believe that these matters are not likely to have a material
adverse effect on the operations of the Funds or on the Investment Manager's,
or Sub-Adviser's ability to perform their respective investment advisory
services to the Funds.
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 31
PIMCO MUNICIPAL INCOME FUNDS III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding each period:
--------------------------------------------------------------------------------
MUNICIPAL III: Six months For the period
ended October 31, 2002*
March 31, 2004 through
(unaudited) September 30, 2003
-------------- ------------------
Net asset value, beginning of period $ 14.05 $ 14.33**
--------------------------------------------------------- ---------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.58 0.78
--------------------------------------------------------- ---------- --------
Net realized and unrealized gain (loss) on investments,
futures contracts and options written 0.40 (0.08)
--------------------------------------------------------- ---------- --------
Total from investment operations 0.98 0.70
--------------------------------------------------------- ---------- --------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.04) (0.06)
--------------------------------------------------------- ---------- --------
Net increase in net assets applicable to common shares
resulting from investment operations 0.94 0.64
--------------------------------------------------------- ---------- --------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.50) (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 $ 14.49 $ 14.05
--------------------------------------------------------- ---------- --------
Market price, end of period $ 14.68 $ 14.20
--------------------------------------------------------- ---------- --------
TOTAL INVESTMENT RETURN (1) 7.06% 0.05%
--------------------------------------------------------- ---------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $ 449,346 $435,169
--------------------------------------------------------- ---------- --------
Ratio of expenses to average net assets (2)(3)(4)(5) 1.05% 0.99%
--------------------------------------------------------- ---------- --------
Ratio of net investment income to average net
assets (2)(4)(5) 8.01% 6.05%
--------------------------------------------------------- ---------- --------
Preferred shares asset coverage per share $ 66,602 $ 65,284
--------------------------------------------------------- ---------- --------
Portfolio turnover 3% 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%
(annualized) and 7.77% (annualized), respectively for the six months
ended March 31, 2004 and 1.22% (annualized) and 5.82% (annualized),
respectively, for the period October 31, 2002 (commencement of
operations) through September 30, 2003.
32 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO MUNICIPAL INCOME FUNDS III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding each period:
--------------------------------------------------------------------------------
Six months For the period
ended October 31, 2002*
March 31, 2004 through
CALIFORNIA MUNICIPAL III (unaudited) September 30, 2003
--------------------------------------------------------- ---------------- --------------------
Net asset value, beginning of period $ 13.43 $ 14.33**
--------------------------------------------------------- ------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.60 0.71
--------------------------------------------------------- ------- -----------
Net realized and unrealized gain (loss) on investments,
futures contracts and options written 0.64 (0.66)
--------------------------------------------------------- ------- -----------
Total from investment operations 1.24 0.05
--------------------------------------------------------- ------- -----------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.04) (0.06)
--------------------------------------------------------- -------- -----------
Net increase (decrease) in net assets applicable to
common shares resulting from investment operations 1.20 (0.01)
--------------------------------------------------------- -------- -----------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.48) (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 $ 14.15 $ 13.43
--------------------------------------------------------- -------- -----------
Market price, end of period $ 14.19 $ 13.62
--------------------------------------------------------- -------- -----------
TOTAL INVESTMENT RETURN (1) 7.87% (4.10)%
--------------------------------------------------------- -------- -----------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $301,294 $ 285,279
--------------------------------------------------------- -------- -----------
Ratio of expenses to average net assets (2)(3)(4)(5) 1.08% 1.01%
--------------------------------------------------------- -------- -----------
Ratio of net investment income to average net
assets (2)(4)(5) 8.58% 5.63%
--------------------------------------------------------- -------- -----------
Preferred shares asset coverage per share $ 65,712 $ 63,539
--------------------------------------------------------- -------- -----------
Portfolio turnover 25% 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%
(annualized) and 8.34% (annualized) respectively for the six months ended
March 31, 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
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 33
PIMCO MUNICIPAL INCOME FUNDS III FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
--------------------------------------------------------------------------------
Six months For the period
ended October 31, 2002*
March 31, 2004 through
NEW YORK MUNICIPAL III (unaudited) September 30, 2003
--------------------------------------------------------- ---------------- --------------------
Net asset value, beginning of period $ 14.14 $ 14.33**
--------------------------------------------------------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.58 0.70
--------------------------------------------------------- ------- ---------
Net realized and unrealized gain on investments, futures
contracts and options written 0.38 0.08
--------------------------------------------------------- ------- ---------
Total from investment operations 0.96 0.78
--------------------------------------------------------- ------- ---------
DIVIDENDS ON PREFERRED SHARES FROM
NET INVESTMENT INCOME (0.03) (0.06)
--------------------------------------------------------- ------- ---------
Net increase in net assets applicable to common shares
resulting from investment operations 0.93 0.72
--------------------------------------------------------- ------- ---------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.48) (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 $ 14.59 $ 14.14
--------------------------------------------------------- ------- ---------
Market price, end of period $ 14.69 $ 13.68
--------------------------------------------------------- ------- ---------
TOTAL INVESTMENT RETURN (1) 11.04% (3.77)%
--------------------------------------------------------- ------- ---------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000) $79,385 $ 76,975
--------------------------------------------------------- ------- ---------
Ratio of expenses to average net assets (2)(3)(4)(5) 1.17% 1.14%
--------------------------------------------------------- ------- ---------
Ratio of net investment income to average net
assets (2)(4)(5) 7.98% 5.47%
--------------------------------------------------------- ------- ---------
Preferred shares asset coverage per share $67,224 $ 65,942
--------------------------------------------------------- ------- ---------
Portfolio turnover 2% 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 1.41%
(annualized) and 7.74% (annualized), respectively for the six months
ended March 31, 2004, and 1.37% (annualized) and 5.24% (annualized),
respectively for the period October 31, 2002 (commencement of operations)
through September 30, 2003.
34 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIMCO MUNICIPAL INCOME FUNDS III ANNUAL SHAREHOLDER MEETINGS
--------------------------------------------------------------------------------
The Funds held their annual meetings of shareholders on January 13, 2004.
Common/Preferred shareholders of each fund voted to elect R. Peter Sullivan III
as a Class II Trustee to serve until 2005, Stephen Treadway as a Class III
Trustee to serve until 2006 and re-elect Hans W. Kertess as a Class I Trustee
to serve until 2007. Preferred shareholders voted to re-elect Robert E. Connor
as a Class I Trustee to serve until 2007.
The resulting vote count is indicated below:
Withhold
Affirmative Authority
--------------------------------------------------------------------------------
Municipal III:
--------------
Election of Stephen Treadway 27,900,735 361,628
Election of R. Peter Sullivan III 27,886,850 375,513
Election of Hans W. Kertess* 27,880,183 382,180
Election of Robert E. Connor 10,351 21
California Municipal III:
-------------------------
Election of Stephen Treadway 18,552,254 131,826
Election of R. Peter Sullivan III 18,547,415 136,665
Election of Hans W. Kertess* 18,548,082 135,998
Election of Robert E. Connor 6,749 7
New York Municipal III:
-----------------------
Election of Stephen Treadway 4,916,542 71,650
Election of R. Peter Sullivan III 4,917,481 70,711
Election of Hans W. Kertess* 4,917,481 70,711
Election of Robert E. Connor 1,715 3
Paul Belica and John J. Dalessandro II* continue to serve as Trustees
of the Funds.
----------------
* Preferred Stock Trustee
3.31.04 PIMCO Municipal Income Funds III Semi-Annual Report 35
This page intentionally left blank.
36 PIMCO Municipal Income Funds III Semi-Annual Report 3.31.04
TRUSTEES AND PRINCIPAL OFFICERS
Stephen Treadway
Trustee, Chairman & Chairman of the Board
Paul Belica
Trustee
Robert E. Connor
Trustee
John J. Dalessandro II
Trustee
Hans W. Kertess
Trustee
R. Peter Sullivan
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
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
1177 Avenue of the Americas
New York, NY 10036
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.
The financial information included herein is taken from the records of each
Fund without examination by independent auditors, who did not express an
opinion hereon.
Information on the Funds is available at www.pimcoadvisors.com or by calling
1-800-331-1710
P I M C O
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A D V I S O R S
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ITEM 2. CODE OF ETHICS Not required in this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT Not required in this filing
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not required in this filing
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT Not required in this filing
ITEM 6. SCHEDULE OF INVESTMENTS 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 Not required in this filing.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES. Disclosure requirement not currently effective
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 Funds 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. The Registrant has not
held an annual shareholder meeting since this rule became effective, so these
procedures have yet to be disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A, and this is the first Form N-CSR filing made by
the Registrant after Item 9 was added to the Form. 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
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 New York Municipal Income Fund III
By /s/ Brian S. Shlissel
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Brian S. Shlissel, President & Chief Executive Officer
Date: June 4, 2004
By /s/ Lawrence G. Altadonna
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Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: June 4, 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
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Brian S. Shlissel, President & Chief Executive Officer
Date: June 4, 2004
By /s/ Lawrence G. Altadonna
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Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: June 4, 2004