N-Q
     
 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
     
Investment Company Act File Number:
  811-21187 
 
    
Registrant Name:
  PIMCO Municipal Income Fund III
 
    
Address of Principal Executive Offices:
  1345 Avenue of the Americas,
New York, NY 10105
 
    
Name and Address of Agent for Service:
  Lawrence G. Altadonna
1345 Avenue of the Americas,
New York, NY 10105
 
    
Registrant’s telephone number, including area code:
  212-739-3371 
 
    
Date of Fiscal Year End:
  September 30, 2009 
 
    
Date of Reporting Period:
  December 31, 2008
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to the collection of information contained in Form N-Q 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 the 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. § 3507.
 
 

 

 

Item 1. Schedule of Investments
PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P)     Value*  
 
MUNICIPAL BONDS & NOTES—89.9%                
       
Alabama—0.8%
                
$ 5,000    
Birmingham Baptist Medical Centers Special Care Facs. Financing Auth. Rev., 5.00%, 11/15/30, Ser. A
   Baa1/NR   $ 2,909,100  
  1,500    
Colbert Cnty., Northwest Health Care Facs. Auth., Health Care Fac. Rev., 5.75%, 6/1/27
   Baa3/NR     1,049,895  
       
 
              
       
 
             3,958,995  
       
 
              
       
 
                
       
Alaska—1.2%
                
  3,100    
Northern Tobacco Securitization Corp. Rev., 5.00%, 6/1/46, Ser. A
   Baa3/NR     1,496,990  
       
State Housing Finance Corp. Rev.,
                
  3,900    
5.00%, 12/1/33, Ser. A
   Aaa/AAA     3,206,658  
  1,000    
5.25%, 6/1/32, Ser. C (MBIA)
   Aa2/AA     886,090  
       
 
              
       
 
             5,589,738  
       
 
              
       
 
                
       
Arizona—4.3%
                
       
Health Facs. Auth. Rev.,
                
  2,250    
Beatitudes Project, 5.20%, 10/1/37
   NR/NR     1,229,963  
  2,200    
John C. Lincoln Health Network, 7.00%, 12/1/25, (Pre-refunded @ $102, 12/1/10) (b)
   NR/BBB     2,447,566  
  1,500    
Maricopa Cnty. Pollution Control Corp., Pollution Control Rev., 5.05%, 5/1/29 (AMBAC)
   Baa1/A     1,046,925  
  13,000    
Pima Cnty. Industrial Dev. Auth. Rev., Correctional Fac., 5.00%, 9/1/39
   Aa2/AA     11,710,010  
  5,600    
Salt Verde Financial Corp. Rev., 5.00%, 12/1/37
   A2/AA-     3,535,672  
       
 
              
       
 
             19,970,136  
       
 
              
       
 
                
       
California—12.4%
                
       
Golden State Tobacco Securitization Corp. Rev., Ser. A-1,
                
  25,735    
6.25%, 6/1/33
   Aaa/AAA     27,934,570  
  18,500    
6.75%, 6/1/39, (Pre-refunded @ $100, 6/1/13) (b)
   NR/AAA     21,514,760  
       
State, GO,
                
  400    
5.00%, 6/1/37
     A1/A+       340,940  
  250    
5.00%, 11/1/37
     A1/A+       212,938  
  5,800    
5.00%, 12/1/37
     A1/A+       4,939,686  
  3,060    
Statewide Community Dev. Auth. Rev., Baptist Univ., 9.00%, 11/1/17, Ser. B (a)(c)
   NR/NR     2,770,096  
       
 
              
       
 
             57,712,990  
       
 
              
       
 
                
       
Colorado—3.0%
                
  9,955    
Colorado Springs Rev., 5.00%, 11/15/30, Ser. B (j)
   Aa2/AA     9,759,782  
  500    
Confluence Metropolitan Dist. Rev., 5.45%, 12/1/34
   NR/NR     281,130  
  1,500    
Housing & Finance Auth. Rev., Evergreen Country Day School, 5.875%, 6/1/37 (a)(c)
   NR/BB     962,400  
  4,000    
Saddle Rock Metropolitan Dist., GO, 5.35%, 12/1/31 (Radian)
   NR/BBB+     3,232,480  
       
 
              
       
 
             14,235,792  
       
 
              
       
 
                
       
Florida—3.1%
                
  3,480    
Brevard Cnty. Health Facs. Auth. Rev., 5.00%, 4/1/34
     A2/A-       2,168,527  
  2,500    
Hillsborough Cnty. Industrial Dev. Auth. Rev., Tampa General Hospital, 5.25%, 10/1/34, Ser. B
   A3/NR     1,821,700  
  1,485    
Julington Creek Plantation Community Dev. Dist., Special Assessment, 5.00%, 5/1/29 (MBIA)
   Baa1/AA     1,252,806  
  3,895    
Sarasota Cnty. Health Fac. Auth. Rev., 5.75%, 7/1/45
   NR/NR     2,252,011  
  6,900    
State Board of Governors Rev., Florida Univ., 6.50%, 7/1/33, Ser. A (d)
   Aa2/AA     7,122,180  
       
 
              
       
 
             14,617,224  
       
 
              

 

 

PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P)     Value*  
 
       
Georgia—1.0%
                
$ 1,750    
Fulton Cnty. Rev., 5.125%, 7/1/42, Ser. A
   NR/NR   $ 932,260  
  4,000    
Griffin Combined Public Utility Rev., 5.00%, 1/1/32 (AMBAC)
     A3/A       3,617,120  
  400    
Medical Center Hospital Auth. Rev., 5.25%, 7/1/37
   NR/NR     219,064  
       
 
              
       
 
             4,768,444  
       
 
              
       
 
                
       
Idaho—1.3%
                
       
State Building Auth., Building Rev., Ser. A (XLCA),
                
  1,000    
5.00%, 9/1/33
   NR/AA-     917,570  
  5,750    
5.00%, 9/1/43
   NR/AA-     5,136,245  
       
 
              
       
 
             6,053,815  
       
 
              
       
 
                
       
Illinois—7.6%
                
  720    
Chicago, GO, 5.00%, 1/1/31, Ser. A (MBIA)
   Aa3/AA     682,301  
  500    
Chicago Board of Education School Reform, GO, zero coupon, 12/1/28, Ser. A (FGIC)
   A1/AA     136,975  
  7,000    
Chicago Motor Fuel Tax Rev., 5.00%, 1/1/33, Ser. A (AMBAC)
   A1/AA+     6,392,820  
       
Educational Facs. Auth. Rev., Univ. of Chicago,
                
  4,780    
5.00%, 7/1/33
   Aa1/AA     4,648,407  
  165    
5.25%, 7/1/41
   Aa1/AA     162,720  
       
Finance Auth. Rev.,
                
       
Leafs Hockey Club, Ser. A,
                
  1,000    
5.875%, 3/1/27
   NR/NR     600,620  
  625    
6.00%, 3/1/37
   NR/NR     349,825  
  12,795    
Peoples Gas Light & Coke, 5.00% 2/1/33 (AMBAC)
     A1/A       11,613,893  
  5,000    
Univ. of Chicago, 5.50%, 7/1/37, Ser. B (d)(j)
   Aa1/AA     4,978,550  
  1,175    
Health Facs. Auth. Rev., Elmhurst Memorial Healthcare, 5.50%, 1/1/22
   Baa1/NR     825,966  
  5,000    
State Toll Highway Auth. Rev., 5.50%, 1/1/33, Ser. B
   Aa3/AA-     4,934,400  
       
 
              
       
 
             35,326,477  
       
 
              
       
 
                
       
Indiana—2.2%
                
  1,375    
Fort Wayne Pollution Control Rev., 6.20%, 10/15/25
   Caa3/C     192,582  
  5,000    
Indianapolis Local Public Improvement Board, Tax Allocation, 5.00%, 2/1/29, Ser. G (MBIA)
   Baa1/AA     4,833,800  
  1,000    
Plainfield Parks Facs. Corp. Lease Rent Rev., 5.00%, 1/15/22 (AMBAC)
   Baa1/A     997,140  
       
Portage Industrial Economic Dev. Rev., Tax Allocation,
                
  1,000    
5.00%, 7/15/23
   NR/BBB+     687,350  
  775    
5.00%, 1/15/27
   NR/BBB+     493,745  
  3,500    
State Dev. Finance Auth., Pollution Control Rev., 5.00%, 3/1/30 (AMBAC)
   Aa3/AAA     2,944,305  
       
 
              
       
 
             10,148,922  
       
 
              
       
 
                
       
Iowa—1.4%
                
       
Finance Auth. Rev.,
                
  575    
5.50%, 11/15/37
   NR/NR     298,506  
  120    
Deerfield Retirement Community Inc., 5.50%, 11/15/27, Ser. A
   NR/NR     68,504  
  11,010    
Tobacco Settlement Auth. of Iowa Rev., 5.60%, 6/1/34, Ser. B
   Baa3/BBB     6,215,916  
       
 
              
       
 
             6,582,926  
       
 
              
       
 
                
       
Kentucky—0.2%
                
  1,000    
Economic Dev. Finance Auth. Rev., Hospital Facs. Rev., Catholic Healthcare Partners, 5.25%, 10/1/30
   A1/AA-     860,819  
       
 
              

 

 

PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P)     Value*  
 
       
Louisiana—1.7%
                
       
Public Facs. Auth. Rev., Ochsner Clinic Foundation, Ser. B,
                
$ 5,000    
5.50%, 5/15/32, (Pre-refunded @ $100, 5/15/26) (b)
   Aaa/NR   $ 5,540,050  
  1,700    
5.50%, 5/15/47
   A3/NR     1,204,722  
  1,595    
Tobacco Settlement Financing Corp. Rev., 5.875%, 5/15/39, Ser. 2001-B
   Baa3/BBB     995,073  
       
 
              
       
 
             7,739,845  
       
 
              
       
 
                
       
Maryland—0.3%
                
  1,500    
Health & Higher Educational Facs. Auth. Rev., Calvert Health Systems, 5.50%, 7/1/36
   A2/NR     1,225,979  
       
 
              
       
 
                
       
Massachusetts—1.2%
                
       
Dev. Finance Agcy. Rev.,
                
  750    
Linden Ponds, 5.75%, 11/15/35, Ser. A
   NR/NR     391,358  
  1,000    
Massachusetts College of Pharmacy, 5.75%, 7/1/33, Ser. C, (Pre-refunded @ $101, 7/1/13) (b)
     A3/A-       1,167,400  
  4,910    
State Housing Finance Agcy., Housing Rev., 5.125%, 6/1/43, Ser. H
   Aa3/AA-     3,960,406  
       
 
              
       
 
             5,519,164  
       
 
              
       
 
                
       
Michigan—13.9%
                
  500    
Conner Creek Academy East Rev., 5.25%, 11/1/36
   NR/BB+     294,740  
  9,320    
Detroit Sewer Disposal System Rev., 5.00%, 7/1/32, Ser. A (FSA)
   Aa3/AAA     7,212,468  
       
Detroit Water Supply System Rev. (MBIA),
                
  30,000    
5.00%, 7/1/34, Ser. A
   A2/AA     24,023,100  
  7,555    
5.00%, 7/1/34, Ser. B
   A3/AA     5,948,958  
       
State Hospital Finance Auth. Rev.,
                
  175    
Detroit Medical Center, 5.25%, 8/15/23
   Ba3/BB-     116,148  
       
Oakwood Group, Ser. A,
                
  5,405    
5.75%, 4/1/32
     A2/A       4,253,843  
  575    
6.00%, 4/1/22
     A2/A       515,666  
  20,000    
Trinity Health Credit, 5.375%, 12/1/30
   Aa2/AA     16,936,000  
  10,000    
Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A
   NR/BBB     5,576,200  
       
 
              
       
 
             64,877,123  
       
 
              
       
 
                
       
Mississippi—0.6%
                
       
Business Finance Corp., Pollution Control Rev.,
                
  3,000    
5.875%, 4/1/22
   Ba1/BBB     2,127,900  
  1,250    
5.90%, 5/1/22
   Ba1/BBB     887,800  
       
 
              
       
 
             3,015,700  
       
 
              
       
 
                
       
Missouri—0.3%
                
  1,350    
St. Louis Cnty. Industrial Dev. Auth. Housing Dev. Rev., 5.20%, 1/20/36 (GNMA)
   NR/AAA     1,194,885  
  250    
Township of Jennings Rev., 5.00%, 11/1/23
   NR/NR     163,090  
       
 
              
       
 
             1,357,975  
       
 
              
       
 
                
       
Montana—1.7%
                
  11,250    
Forsyth Pollution Control Rev., Puget Sound Energy, 5.00%, 3/1/31 (AMBAC)
   Baa1/A     7,809,188  
       
 
              
       
 
                
       
New Hampshire—1.0%
                
       
Manchester Water Works Rev., (FGIC),
                
  1,500    
5.00%, 12/1/28
   Aa3/AA     1,468,455  
  3,250    
5.00%, 12/1/34
   Aa3/AA     3,073,980  
       
 
              
       
 
             4,542,435  
       
 
              

 

 

PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P)     Value*  
 
       
New Jersey—4.5%
                
$ 1,000    
Camden Cnty., Improvement Auth. Rev., 5.00%, 2/15/35, Ser. A
   Baa3/BBB   $ 540,150  
       
Economic Dev. Auth. Rev.,
                
  4,500    
Kapkowski Road Landfill, Special Assessment, 6.50%, 4/1/28
   Baa3/NR     3,749,445  
  300    
Newark Airport, 7.00%, 10/1/14
   Ba1/NR     240,045  
  2,000    
Financing Auth. Rev., South Jersey Port Corp., 5.10%, 1/1/33, Ser. K
   NR/A     1,886,500  
       
Health Care Facs. Financing Auth. Rev.,
                
  1,159    
Pascack Valley Hospital, 6.625%, 7/1/36 (e)(k)(l)
   NR/D     149,999  
  1,000    
St. Peters Univ. Hospital, 5.75%, 7/1/37
   Baa2/BBB-     648,300  
  1,150    
Trinitas Hospital, 5.25%, 7/1/30, Ser. A
   Baa3/BBB-     739,979  
       
Tobacco Settlement Financing Corp. Rev.,
                
  22,645    
5.00%, 6/1/41, Ser. 1A
   Baa3/BBB     11,010,905  
  525    
6.00%, 6/1/37, (Pre-refunded @ $100, 6/1/12) (b)
   Aaa/AAA     593,554  
  950    
6.125%, 6/1/24
   Aaa/AAA     1,005,556  
  230    
6.125%, 6/1/42, (Pre-refunded @ $100, 6/1/12) (b)
   Aaa/AAA     260,974  
  350    
6.25%, 6/1/43, (Pre-refunded @ $100, 6/1/13) (b)
   Aaa/AAA     408,524  
       
 
              
       
 
             21,233,931  
       
 
              
       
 
                
       
New Mexico—0.2%
                
  1,000    
Farmington Pollution Control Rev., 5.80%, 4/1/22
   Baa3/BB+     783,070  
       
 
              
       
 
                
       
New York—1.2%
                
  1,150    
Nassau Cnty. Industrial Dev. Agcy. Rev., Amsterdam at Harborside, 6.70%, 1/1/43, Ser. A
   NR/NR     786,612  
  4,900    
New York City Municipal Water Finance Auth. Water & Sewer System Rev., 5.00%, 6/15/37, Ser. D (j)
   Aa2/AAA     4,596,347  
       
 
              
       
 
             5,382,959  
       
 
              
       
 
                
       
North Carolina—1.7%
                
       
Eastern Municipal Power Agcy., Power System Rev.,
                
  2,000    
5.125%, 1/1/23, Ser. D
   Baa1/BBB+     1,635,600  
  2,000    
5.125%, 1/1/26, Ser. D
   Baa1/BBB+     1,562,060  
  3,795    
5.375%, 1/1/17, Ser. C
   Baa1/BBB+     3,723,844  
  1,500    
Medical Care Commission Rev., Cleveland Cnty., 5.00%, 7/1/35 (AMBAC)
   Baa1/A     1,105,350  
       
 
              
       
 
             8,026,854  
       
 
              
       
 
                
       
Ohio—3.9%
                
  15,375    
Air Quality Dev. Auth. Pollution Control Rev., Dayton Power, 4.80%, 1/1/34 (FGIC)
     A2/A-       13,213,583  
  5,000    
Buckeye Tobacco Settlement Financing Auth. Rev., 5.875%, 6/1/47, Ser. A-2
   Baa3/BBB     2,720,800  
  2,500    
Lorain Cnty. Hospital Rev., Catholic Healthcare, 5.375%, 10/1/30
   A1/AA-     2,188,725  
       
 
              
       
 
             18,123,108  
       
 
              
       
 
                
       
Pennsylvania—1.4%
                
       
Cumberland Cnty. Auth., Retirement Community Rev., Messiah Village, Ser. A,
                
  750    
5.625%, 7/1/28
   NR/BBB-     489,878  
  670    
6.00%, 7/1/35
   NR/BBB-     435,212  

 

 

PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P)     Value*  
 
       
Pennsylvania (continued)
                
$ 1,250    
Harrisburg Auth. Rev., 6.00%, 9/1/36
   NR/NR   $ 832,462  
  6,200    
Philadelphia Hospitals & Higher Education Facs. Auth. Hospital Rev., Temple Univ. Hospital, 6.625%, 11/15/23, Ser. A
   Baa3/BBB     4,694,826  
       
 
              
       
 
             6,452,378  
       
 
              
       
 
                
       
South Carolina—0.9%
                
  5,305    
Jobs-Economic Dev. Auth. Rev., Bon Secours, 5.625%, 11/15/30
     A3/A-       4,388,030  
       
 
              
       
 
                
       
Tennessee—0.2%
                
  1,250    
Knox Cnty. Health Educational & Housing Facs. Board Rev., Catholic Healthcare Partners, 5.25%, 10/1/30
   A1/AA-     1,076,012  
       
 
              
       
 
                
       
Texas—8.3%
                
  1,300    
Comal Cnty. Health Facs. Dev. Rev., McKenna Memorial Hospital Project, 6.25%, 2/1/32, (Pre-refunded @ $100, 2/1/13) (b)
   NR/AAA     1,512,667  
  6,810    
Crowley Independent School District, GO, 4.75%, 8/1/35 (PSF-GTD)
   Aaa/AAA     6,093,247  
  10,115    
Denton Independent School Dist., GO, 5.00%, 8/15/33 (PSF-GTD) (j)
   Aaa/AAA     9,808,111  
  465    
Judson Independent School Dist., GO, 5.00%, 2/1/30 (PSF-GTD)
   Aaa/NR     457,839  
       
North Harris Cnty. Regional Water Auth. Rev.,
                
  5,500    
5.25%, 12/15/33
     A3/A+       4,936,470  
  5,500    
5.50%, 12/15/38
     A3/A+       5,056,370  
  10,800    
North Texas Tollway Auth. Rev., 5.625%, 1/1/33, Ser. A
     A2/A-       9,334,656  
  2,000    
Sabine River Auth. Rev., 5.20%, 5/1/28
   Caa1/CCC     957,740  
       
 
              
       
 
             38,157,100  
       
 
              
       
 
                
       
Virginia—0.1%
                
  1,000    
James City Cnty. Economic Dev. Auth. Rev., 5.50%, 7/1/37, Ser. A
   NR/NR     553,960  
       
 
              
       
 
                
       
Washington—8.2%
                
  6,375    
Chelan Cnty. Public Utility Dist. Rev., 5.125%, 7/1/33, Ser. C (AMBAC)
   Aa2/AA     6,283,136  
  15,000    
King Cnty. Sewer Rev., 5.00%, 1/1/35, Ser. A (FSA) (j)
   Aaa/AAA     14,409,750  
  21,480    
Tobacco Settlement Auth. Tobacco Settlement Rev., 6.50%, 6/1/26
   Baa3/BBB     17,662,575  
       
 
              
       
 
             38,355,461  
       
 
              
       
 
                
       
Wisconsin—0.1%
                
  560    
Badger Tobacco Asset Securitization Corp. Rev., 6.00%, 6/1/17
   Baa3/BBB     509,196  
       
 
              
       
Total Municipal Bonds & Notes (cost—$482,819,083)
             418,955,746  
       
 
              
 
CORPORATE BONDS & NOTES—1.2%                
  5,500    
CIT Group, Inc., 5.80%, 7/28/11 (i)
   Baa1/BBB+     4,608,764  
       
International Lease Finance Corp., FRN,
                
  700    
2.373%, 5/24/10
   Baa1/A-     557,964  
  600    
5.153%, 1/15/10
   Baa1/A-     452,663  
       
 
              
       
Total Corporate Bonds & Notes (cost—$5,032,239)
             5,619,391  
       
 
              

 

 

PIMCO Municipal Income Fund III Schedule of Investments
December 31, 2008 (unaudited)
                         
Principal                  
Amount         Credit Rating        
(000)         (Moody’s/S&P) (cost — $19,178,190     Value*  
 
SHORT-TERM INVESTMENTS—8.9%                
U.S. Treasury Bills (h)—4.1%                
  $19,180    
0.03%-0.98%, 1/22/09-5/15/09 (cost — $19,178,190)
           $ 19,178,190  
       
 
              
 
Variable Rate Demand Notes (f)(g)—2.5%                
       
Montana—1.7%
                
  7,980    
State Board of Regents Rev., Montana St. Univ. Facs., 0.90%, 1/2/09, Ser. J
   VMIG1/A-1+     7,980,000  
       
 
              
       
 
                
       
South Carolina—0.8%
                
  3,500    
Educational Facs. Auth. Rev., Furman Univ., 0.95%, 1/2/09, Ser. B
   VMIG1/NR     3,500,000  
       
 
              
       
Total Variable Rate Demand Notes (cost—$11,480,000)
             11,480,000  
       
 
              
       
 
                
Corporate Bonds & Notes (i)—2.3%                
       
American General Finance Corp.,
                
  1,900    
4.403%, 10/2/09, FRN
   Baa1/BBB     1,456,669  
  1,400    
4.625%, 5/15/09
   Baa1/BBB     1,200,748  
       
CIT Group, Inc.,
                
  1,200    
2.269%, 8/17/09, FRN
   Baa1/BBB+     1,153,367  
  5,785    
4.125%, 11/3/09
   Baa1/BBB+     5,446,456  
  1,800    
Goldman Sachs Group, Inc., 2.229%, 11/16/09, FRN
     A1/A       1,724,112  
       
 
              
       
Total Corporate Bonds & Notes (cost—$10,737,609)
             10,981,352  
       
 
              
       
Total Short-Term Investments (cost—$41,395,799)
             41,639,542  
       
 
              
       
 
                
       
Total Investments (cost—$529,247,121)—100.0%
           $ 466,214,679  
       
 
              

 

 

 
Notes to Schedule of Investments:
 
*   Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.
 
    Portfolio securities and other financial instruments for which market quotations are not readily available or if a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees. The Fund’s investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the last quoted mean price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales. 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. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement date. Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.
 
    The prices used by the Fund to value securities may differ from the value that would be realized if the securities were sold and these differences could be material. The Fund’s net asset value is normally determined daily as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.
 
(a)   Private Placement—Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $3,732,496 representing 0.80% of total investments.
 
(b)   Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate).
 
(c)   144A Security—Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.
 
(d)   When-issued or delayed-delivery security. To be settled/delivered after December 31, 2008.
 
(e)   Security in default.
 
(f)   Variable Rate Notes—Instruments whose interest rates change on specified date (such as a coupon date or interest payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). The interest rate disclosed reflects the rate in effect on December 31, 2008.
 
(g)   Maturity date shown is date of next put.
 
(h)   All or partial amount segregated as collateral for swap contracts.
 
(i)   All or partial amount segregated as collateral for reverse repurchase agreements.
 
(j)   Residual Interest Bonds held in Trust—Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.
 
(k)   Illiquid security.
 
(l)   Fair-Valued —Security with an aggregate value of $149,999, representing 0.03% of total investments.
Glossary:

AMBAC—insured by American Municipal Bond Assurance Corp.

FGIC—insured by Financial Guaranty Insurance Co.

FRN—Floating Rate Note. The interest rate disclosed reflects the rate in effect on December 31, 2008.

FSA—insured by Financial Security Assurance, Inc.

GNMA—insured by Government National Mortgage Association

GO—General Obligation Bond

GTD—Guaranteed

MBIA—insured by Municipal Bond Investors Assurance

NR—Not Rated

PSF—Public School Fund

Radian—insured by Radian Guaranty, Inc.

XLCA—insured by XL Capital Assurance

 

 

Other Investments:
(1) Interest rate swap agreements outstanding at December 31, 2008:
                                                         
                                     
                    Rate Type         Upfront    
    Notional Amount   Termination   Payments Made   Payments Received   Market   Premiums   Unrealized
Swap Counterparty   (000)   Date   by Fund   by Fund   Value   Paid   Depreciation
 
Bank of America
   $ 37,700       12/17/23       5.00 %   3-Month USD-LIBOR   $ (10,279,874 )   $ (2,258,984 )     $(8,065,124 )
Credit Suisse First Boston
     6,600       6/17/24       4.00 %   3-Month USD-LIBOR     (922,312 )     (798,204 )     (124,108 )
Merrill Lynch & Co.
     2,500       12/17/38       5.00 %   3-Month USD-LIBOR     (1,133,843 )     (281,600 )     (855,177 )
Royal Bank of Scotland
     16,100       12/17/23       5.00 %   3-Month USD-LIBOR     (4,390,079 )     (998,200 )     (3,410,769 )
Royal Bank of Scotland
     11,100       6/17/24       4.00 %   3-Month USD-LIBOR     (1,551,161 )     (1,342,545 )     (208,616 )
                                     
 
                                   $ (18,277,269 )   $ (5,679,533 )   $ (12,663,794 )
                                     
 
LIBOR — London Inter-Bank Offered Rate
 
     
(2)   Open reverse repurchase agreements at December 31, 2008:
                                         
Counterparty   Rate     Trade Date     Maturity Date     Principal & Interest     Principal  
 
Barclays Bank
     1.65 %     12/24/08       1/29/09       $2,731,376       $2,731,000  
 
     1.75 %     12/23/08       1/26/09       7,346,142       7,344,000  
 
     1.75 %     12/23/08       1/29/09       2,376,346       2,376,000  
 
                                      
 
                                   $ 12,451,000  
 
                                      
Collateral for open reverse repurchase agreements at December 31, 2008 as reflected in the Schedule of Investments:
                                     
                                Market  
Counterparty   Description   Rate     Maturity Date     Principal     Value  
 
Barclays Bank
   American General Finance Corp.     4.403 %     10/2/09     $ 1,900,000       $1,456,669  
 
   American General Finance Corp.     4.625 %     5/15/09       1,400,000       1,200,748  
 
   CIT Group, Inc.     2.269 %     8/17/09       1,200,000       1,153,367  
 
   CIT Group, Inc.     4.125 %     11/3/09       5,785,000       5,446,456  
 
   CIT Group, Inc.     5.80 %     7/28/11       5,500,000       4,608,764  
 
   Goldman Sachs Group, Inc.     2.229 %     11/16/09       1,800,000       1,724,112  
 
                                  
 
                               $ 15,590,116  
 
                                  
The Fund received $956,045 in U.S. government agency securities as collateral for reverse repurchase agreements.

 

 

Fair Value Measurements—Effective October 1, 2008, the Fund has adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of the fair value measurements. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy under SFAS 157 are described below:
  •   Level 1 — quoted prices in active markets for identical investments that the Fund has the ability to access
 
  •   Level 2 — valuation based on other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges
 
  •   Level 3 — valuation based on significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The valuation techniques used by the Fund to measure fair value during the three months ended December 31, 2008 maximized the use of observable inputs and minimized the use of unobservable inputs. The Fund utilized the following fair valuation technique on Level 3: multi-dimensional relational pricing model.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used at December 31, 2008 in valuing the Fund’s investments carried at value:
                 
            Other  
    Investments in     Financial  
Valuation Inputs   Securities     Instruments  
 
Level 1 - Quoted Prices
     $—       $—  
Level 2 - Other Significant Observable Inputs
     466,064,680       (12,663,794 )
Level 3 - Significant Unobservable Inputs
     149,999       —  
 
            
Total
     $466,214,679       $(12,663,794 )
 
            
A roll forward of fair value measurements using significant unobservable inputs (Level 3) at December 31, 2008, were as follows:
         
    Investments in  
    Securities  
 
Beginning balance, 9/30/08
     $149,999  
Net purchases (sales) and settlements
     —  
Accrued discounts (premiums)
     —  
Total realized and unrealized gain (loss)
     —  
Transfers in and/or out of Level 3
     —  
 
      
Ending balance, 12/31/08
     $149,999  
 
      

 

 

Item 2. Controls and Procedures
(a) The registrant’s President & Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a -3(c))), are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a -3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 3. Exhibits
     (a) Exhibit 99.302 Cert. — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: PIMCO Municipal Income Fund III
By /s/ Brian S. Shlissel
President & Chief Executive Officer

Date: February 25, 2009
By /s/ Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer

Date: February 25, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Brian S. Shlissel
President & Chief Executive Officer

Date: February 25, 2009
By /s/ Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer

Date: February 25, 2009