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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:
  811-21188
 
    
Registrant Name:
  PIMCO California 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, 2010
 
    
Date of Reporting Period:
  December 31, 2009
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, 100 F Street, NE, Washington, DC 20549-2001. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
 
 

 

 

Item 1. Schedule of Investments
PIMCO California Municipal Income Fund III Schedule of Investments
December 31, 2009 (unaudited)
                     
Principal                
Amount         Credit Rating      
(000s)         (Moody’s/S&P)   Value*  
 
CALIFORNIA MUNICIPAL BONDS & NOTES—94.4%            
       
Assoc. of Bay Area Gov’t Finance Auth. for Nonprofit Corps. Rev.,
            
       
Odd Fellows Home of California, Ser. A (CA Mtg. Ins.),
            
$ 3,200    
5.20%,11/15/22
   NR/A   $ 3,225,952  
  11,725    
5.35%,11/15/32
   NR/A     11,724,179  
  1,000    
Cathedral City Public Financing Auth., Tax Allocation, 5.00%, 8/1/33, Ser. A (NPFGC)
   Baa1/A     842,430  
  1,150    
Ceres Redev. Agcy., Tax Allocation, Project Area No. 1, 5.00%, 11/1/33 (NPFGC)
   Baa1/A     948,210  
  2,000    
Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B
   Aa3/A+     2,187,980  
  550    
City & Cnty. of San Francisco, Capital Improvement Projects, CP, 5.25%, 4/1/31, Ser. A
   A1/AA-     558,806  
  1,415    
Contra Costa Cnty. Public Financing Auth., Tax Allocation, 5.625%, 8/1/33, Ser. A
   NR/BBB     1,341,618  
  3,775    
Cucamonga School Dist., CP, 5.20%, 6/1/27
   NR/A-     3,520,112  
       
Educational Facs. Auth. Rev.,
            
  9,800    
Claremont McKenna College, 5.00%, 1/1/39 (f)
   Aa2/NR     10,020,598  
  3,300    
Pepperdine Univ., 5.00%, 9/1/33, Ser. A (FGIC-NPFGC)
   Aa3/A     3,302,211  
  10,000    
Univ. of Southern California, 5.00%, 10/1/39, Ser. A (f)
   Aa1/AA+     10,401,200  
  1,695    
El Dorado Irrigation Dist. & El Dorado Water Agcy., CP, 5.75%, 8/1/39, Ser. A
   Aa3/AAA     1,768,071  
       
Golden State Tobacco Securitization Corp. Rev.,
            
  11,000    
5.00%, 6/1/45 (AMBAC-TCRS)
   Baa2/A-     9,190,280  
  4,000    
5.00%, 6/1/45, Ser. A (FGIC-TCRS)
   Baa2/A-     3,341,920  
  500    
Hartnell Community College Dist., GO, zero coupon, 8/1/34, Ser. D
   A1/AA-     210,140  
       
Health Facs. Financing Auth. Rev.,
            
       
Adventist Health System, Ser. A,
            
  500    
5.00%,3/1/33
   NR/A     458,460  
  4,000    
5.75%,9/1/39
   NR/A     4,014,360  
       
Catholic Healthcare West, Ser. A,
            
  1,935    
6.00%,7/1/34
   A2/A     2,037,265  
  4,000    
6.00%,7/1/39
   A2/A     4,231,080  
  500    
Children’s Hospital of Orange Cnty., 6.50%, 11/1/38, Ser. A
   NR/A     529,325  
  6,000    
Cottage Health System, 5.00%, 11/1/33, Ser. B (NPFGC)
   Baa1/A+     5,424,540  
       
Paradise VY Estates (CA Mtg. Ins.),
            
  2,000    
5.125%, 1/1/22
   NR/A     1,988,480  
  1,550    
5.25%,1/1/26
   NR/A     1,512,335  
       
Infrastructure & Economic Dev. Bank Rev., Kaiser Hospital Assistance,
            
  3,000    
5.50%, 8/1/31, Ser. B
   NR/A     3,007,560  
  8,000    
5.55%, 8/1/31, Ser. A
   NR/A+     8,097,600  
  20    
Lancaster Financing Auth., Tax Allocation, 4.75%, 2/1/34 (NPFGC)
   Baa1/A     15,947  
  500    
Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39
   NR/A     527,380  
  5,600    
Long Beach Bond Finance Auth. Rev., Long Beach Natural Gas, 5.50%, 11/15/37, Ser. A
   A2/A     5,280,464  
  5,000    
Long Beach Unified School Dist., GO, 5.75%, 8/1/33, Ser. A
   Aa3/AA-     5,412,700  
       
Los Angeles Department of Water & Power Rev. (f),
            
  6,000    
4.75%, 7/1/30, Ser. A-2 (FSA)
   Aa3/AAA     6,083,820  
  10,000    
5.00%, 7/1/39, Ser. A
   Aa3/AA-     10,151,800  
       
Los Angeles Unified School Dist., GO,
            
  9,580    
4.75%, 1/1/28, Ser. A (NPFGC)
   Aa3/AA-     9,499,911  
  10,000    
5.00%, 1/1/34, Ser. I (f)
   Aa3/AA-     10,044,900  
  550    
Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A
   NR/AA+     554,543  
  1,000    
Manteca Financing Auth. Sewer Rev., 5.75%, 12/1/36
   A2/AAA     1,061,170  

 

 

PIMCO California Municipal Income Fund III Schedule of Investments
December 31, 2009 (unaudited)
                     
Principal                
Amount         Credit Rating      
(000s)         (Moody’s/S&P)   Value*  
 
$ 5,000    
Metropolitan Water Dist. of Southern California Rev., 5.00%, 7/1/37, Ser. A (f)
   Aa2/AAA   $ 5,167,000  
  5,280    
Modesto Irrigation Dist., Capital Improvements, CP, 5.00%, 7/1/33, Ser. A (NPFGC)
   A1/A+     5,123,765  
  3,000    
Montebello Unified School Dist., GO, 5.00%, 8/1/33 (FSA)
   Aa3/AAA     3,016,500  
  200    
M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B
   NR/A     212,626  
  5,000    
Oakland, GO, 5.00%, 1/15/33, Ser. A (NPFGC)
   A1/AA-     4,821,100  
  5,000    
Orange Cnty. Unified School Dist., CP, 4.75%, 6/1/29 (NPFGC)
   A1/A+     5,167,000  
       
Orange Cnty. Water Dist. Rev., CP, Ser. B (NPFGC),
            
  4,560    
5.00%,8/15/34
   Aa2/AAA     4,621,286  
  965    
5.00%,8/15/34
   NR/AAA     1,080,356  
  2,000    
Palm Desert Financing Auth., Tax Allocation, 5.00%, 4/1/25, Ser. A (NPFGC)
   Baa1/A     1,824,980  
  1,250    
Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C
   NR/AA-     1,205,100  
  1,410    
Pomona Public Financing Auth. Sewer Rev., 5.00%, 12/1/37, Ser. AF (NPFGC)
   A3/AA-     1,325,231  
  1,950    
Poway Unified School Dist., Special Tax, 5.125%, 9/1/28
   NR/BBB     1,768,007  
  5,000    
Riverside, CP, 5.00%, 9/1/33 (AMBAC)
   NR/A+     4,785,750  
  500    
Rocklin Unified School Dist. Community Facs., Special Tax, 5.00%, 9/1/29 (NPFGC)
   Baa1/A     457,555  
  3,250    
Sacramento Municipal Utility Dist. Rev., 5.00%, 8/15/33, Ser. R (NPFGC)
   A1/A+     3,196,733  
  6,250    
San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. A (FSA)
   Aa3/AAA     6,221,375  
  12,075    
San Diego Community College Dist., GO, 5.00%, 5/1/28, Ser. A (FSA)
   Aa2/AAA     12,476,494  
  2,000    
San Diego Public Facs. Financing Auth. Rev., 5.25%, 5/15/39, Ser. A
   A2/A+     2,061,000  
  2,200    
San Diego Regional Building Auth. Rev., Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A
   A1/AA+     2,265,956  
  1,500    
San Diego State Univ. Rev., 5.00%, 3/1/27, Ser. A (NPFGC)
   Baa1/A     1,529,010  
  3,000    
San Jose, Libraries & Parks Project, GO, 5.125%, 9/1/31
   Aa1/AAA     3,054,270  
  13,200    
San Marcos Public Facs. Auth., Tax Allocation, 5.00%, 8/1/33, Ser. A (FGIC-NPFGC)
   A3/A     11,517,792  
  500    
Santa Clara Cnty. Financing Auth. Rev., 5.75%, 2/1/41, Ser. A (AMBAC)
   A1/A+     519,860  
  1,200    
Santa Cruz Cnty. Redev. Agcy., Tax Allocation, Live Oak/Soquel Community, 7.00%, 9/1/36, Ser. A
   A2/A     1,296,336  
  4,425    
South Tahoe JT Powers Financing Auth. Rev., 5.45%, 10/1/33, Ser. A
   NR/BBB     3,994,624  
  4,095    
State Department Veteran Affairs Rev., 5.35%, 12/1/27, Ser. A (AMBAC)
   Aa2/AA-     4,076,122  
  7,300    
State, GO, 6.00%, 4/1/38
   Baa1/A     7,444,321  
       
State Public Works Board Rev.,
            
  2,000    
California State Univ., 6.00%, 11/1/34, Ser. J
   A1/A-     2,019,000  
  2,600    
Univ. CA M.I.N.D. Inst., 5.00%, 4/1/28, Ser. A
   Aa2/AA-     2,620,644  
       
Statewide Communities Dev. Auth. Rev.,
            
       
Catholic Healthcare West,
            
  1,200    
5.50%, 7/1/31, Ser. D
   A2/A     1,220,592  
  1,200    
5.50%, 7/1/31, Ser. E
   A2/A     1,220,592  
  7,300    
Los Angeles Jewish Home, 5.50%, 11/15/33 (CA St. Mtg.)
   NR/A     6,825,062  
  15,000    
Memorial Health Services, 5.50%, 10/1/33, Ser. A
   NR/A+     15,047,100  
       
Methodist Hospital Project (FHA),
            
  2,000    
6.625%, 8/1/29
   Aa2/AA     2,259,320  
  7,200    
6.75%, 2/1/38
   Aa2/AA     8,090,424  
  3,100    
St. Joseph, 5.75%, 7/1/47, Ser. A (FGIC)
   A1/AA-     3,179,422  
  10,000    
Sutter Health, 5.50%, 8/15/34, Ser. B
   Aa3/A+     10,021,000  
  3,505    
The Internext Group, CP, 5.375%, 4/1/30
   NR/BBB     3,144,055  

 

 

PIMCO California Municipal Income Fund III Schedule of Investments
December 31, 2009 (unaudited)
                     
Principal                
Amount         Credit Rating      
(000s)         (Moody’s/S&P)   Value*  
 
       
Tobacco Securitization Agcy. Rev.,
            
       
Alameda Cnty.,
            
$ 8,100    
5.875%,6/1/35
   Baa3/NR   $ 6,855,921  
  7,000    
6.00%,6/1/42
   Baa3/NR     5,587,540  
  2,000    
Kern Cnty., 6.125%, 6/1/43, Ser. A
   NR/BBB     1,623,520  
  5,000    
Tobacco Securitization Auth. Rev., 5.00%, 6/1/37, Ser. A-1
   Baa3/BBB     3,554,600  
  2,950    
Torrance Rev., Torrance Memorial Medical Center, 5.50%, 6/1/31, Ser. A
   A1/A+     2,968,939  
  1,000    
West Basin Municipal Water Dist., CP, 5.00%, 8/1/30, Ser. A (NPFGC)
   Aa3/AA-     1,020,910  
  2,000    
Western Municipal Water Dist. Facs. Auth. Rev., 5.00%, 10/1/39, Ser. B
   NR/AA+     2,032,240  
  1,000    
Westlake Village, CP, 5.00%, 6/1/39
   NR/AA+     1,014,170  
  2,500    
William S. Hart Union High School Dist., Special Tax, 6.00%, 9/1/33
   NR/NR     2,279,725  
  2,750    
Woodland Finance Auth.Rev., 5.00%, 3/1/32 (XLCA)
   A3/NR     2,787,208  
       
 
          
       
Total California Municipal Bonds & Notes (cost—$322,290,386)
         328,119,480  
       
 
          
       
 
            
OTHER MUNICIPAL BONDS & NOTES—5.2%            
       
Indiana—1.2%
            
  5,000    
Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 5.75%, 9/1/42 (a)(b)
   NR/NR     4,034,750  
       
 
          
       
 
            
       
New York—1.0%
            
  3,300    
New York City Municipal Water Finance Auth. Water & Sewer Rev., 5.00%, 6/15/37, Ser. D (f)
   Aa2/AAA     3,381,972  
       
 
          
       
 
            
       
Puerto Rico—2.6%
            
  4,420    
Public Building Auth. Gov’t Facs. Rev., 5.00%, 7/1/36, Ser. I (GTD)
   Baa3/BBB-     3,922,617  
       
 
          
       
Sales Tax Financing Corp. Rev., Ser. A,
            
  23,200    
zero coupon, 8/1/47 (AMBAC)
   Aa3/AA-     2,272,904  
  29,200    
zero coupon, 8/1/54 (AMBAC)
   Aa3/AA-     1,651,552  
  26,300    
zero coupon, 8/1/56
   Aa3/AA-     1,295,801  
       
 
          
       
 
         5,220,257  
       
 
          
       
 
            
       
South Dakota—0.4%
            
  2,000    
Minnehaha Cnty. Rev., Bethany Lutheran, 5.50%, 12/1/35
   NR/NR     1,560,720  
       
 
          
       
Total Other Municipal Bonds & Notes (cost—$20,588,257)
         18,120,316  
       
 
          
       
 
            
CALIFORNIA VARIABLE RATE NOTES (a)(b)(c)(d)—0.3%            
  1,000    
Los Angeles Community College Dist., GO, 13.56%, 8/1/33, Ser. 3096 (cost—$996,606)
   NR/AA     1,026,600  
       
 
          
       
 
            
SHORT-TERM INVESTMENT (e)—0.1%            
       
Corporate Notes—0.1%
            
       
Financial Services—0.1%
            
  500    
International Lease Finance Corp., 0.482%, 5/24/10, FRN (cost—$465,880)
   B1/BBB+     486,120  
       
 
          
       
 
            
       
Total Investments (cost—$344,341,129)—100.0%
       $ 347,752,516  
       
 
          

 

 

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, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services.
 
    Portfolio securities and other financial instruments for which market quotations are not readily available or for which a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees. The 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 mean between the last quoted bid and ask 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. 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. 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 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 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 $5,061,350, representing 1.5% of total investments.
 
(b)   144A—Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.
 
(c)   Inverse Floater—The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on December 31, 2009.
 
(d)   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, 2009.
 
(e)   All or partial amount segregated as collateral for reverse repurchase agreements.
 
(f)   Residual Interest Bonds held in Trust—Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.
Glossary:
AMBAC—insured by American Municipal Bond Assurance Corp.
CA Mtg. Ins.—insured by California Mortgage Insurance
CA St. Mtg.—insured by California State Mortgage
CP—Certificates of Participation
FGIC—insured by Financial Guaranty Insurance Co.
FHA—insured by Federal Housing Administration
FRN—Floating Rate Note. The interest rate disclosed reflects the rate in effect on December 31, 2009.
FSA—insured by Financial Security Assurance, Inc.
GO—General Obligation Bond
GTD—Guaranteed
NPFGC—insured by National Public Finance Guarantee Corporation
NR—Not Rated
TCRS—Temporary Custodian Receipts
XLCA—insured by XL Capital Assurance
Open reverse repurchase agreements at December 31, 2009:
                                         
Counterparty   Rate     Trade Date     Maturity Date     Principal & Interest   Principal  
Credit Susse First Boston
     0.55 %     12/7/09       1/12/10     $ 448,171     $ 448,000  
 
                                      
The weighted average daily balance of reverse repurchase agreements outstanding during the three months ended December 31, 2009 was $692,033 at a weighted average interest rate of 0.61%. The total market value of underlying collateral (refer to the Schedule of Investments for positions segregated as collateral for reverse repurchase agreements) for open reverse repurchase agreements at December 31, 2009 was $486,120.

 

 

Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:
  •   Level 1 — quoted prices in active markets for identical investments that the Fund has the ability to access
 
  •   Level 2 — valuations based on other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges
 
  •   Level 3 — valuations based on significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in the aggregate, that is significant to fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation technique used.
The valuation techniques used by the Fund to measure fair value during the three months ended December 31, 2009 maximized the use of observable inputs and minimized the use of unobservable inputs.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
A summary of the inputs used at December 31, 2009 in valuing the Fund’s assets and liabilities is listed below:
                                 
            Level 2 -   Level 3 -    
            Other Significant   Significant    
    Level 1 -   Observable   Unobservable   Value at
    Quoted Prices   Inputs   Inputs   12/31/09
 
Investments in Securities — Assets
                                
California Municipal Bonds & Notes
     —     $ 328,119,480       —     $ 328,119,480  
Other Municipal Bonds & Notes
     —       18,120,316       —       18,120,316  
California Variable Rate Notes
     —       1,026,600       —       1,026,600  
Short-Term Investments
     —       486,120       —       486,120  
 
Total Investments
     —     $ 347,752,516       —     $ 347,752,516  
 

 

 

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 California Municipal Income Fund III
         
By
  /s/ Brian S. Shlissel
 
    
President & Chief Executive Officer    
Date: February 23, 2010    
 
        
By
  /s/ Lawrence G. Altadonna    
 
       
Treasurer, Principal Financial & Accounting Officer    
Date: February 23, 2010    
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 23, 2010    
 
        
By
  /s/ Lawrence G. Altadonna
 
    
Treasurer, Principal Financial & Accounting Officer    
Date: February 23, 2010