UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number 811-21188

PIMCO California Municipal Income Fund III

(Exact name of registrant as specified in charter)

 

1345 Avenue of the Americas, New York, NY

10105

(Address of principal executive offices)

(Zip code)

Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, NY 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, 2007

Date of reporting period: September 30, 2007

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. § 3507.

 

 



ITEM 1. REPORT TO SHAREHOLDERS

PIMCO Municipal Income Fund III
PIMCO California Municipal Income Fund III
PIMCO New York Municipal Income Fund III
Annual Report
September 30, 2007

Contents

Letter to Shareholders  1 Fund Insights/Performance & Statistics  2-4 Schedules of Investments  5-24 Statements of Assets and Liabilities  25 Statements of Operations  26 Statements of Changes in Net Assets  28-29 Statements of Cash Flows  30-32 Notes to Financial Statements  33-40 Financial Highlights  41-43 Report of Independent Registered Public
Accounting Firm 44 Tax Information/Annual Shareholder Meetings Results 45 Matters Relating to the Trustees’ Consideration
of the Investment Management & Portfolio
Management Agreements 46-48 Privacy Policy/Proxy Voting Policies
& Procedures 49 Dividend Reinvestment Plan 50 Board of Trustees 51-52 Principal Officers 53




PIMCO Municipal Income Funds III 
Letter to Shareholders

November 1, 2007

Dear Shareholder:

We are pleased to provide you with the annual report for the PIMCO Municipal Income Fund III, PIMCO California Municipal Income Fund III and PIMCO New York Municipal Income Fund III (the ‘‘Funds’’) for the fiscal year ended September 30, 2007.

The U.S. bond market delivered modest returns for the period as economic growth continued to moderate and weakness in the U.S. housing and mortgage markets added to volatility. The Lehman Municipal Bond Index returned 3.09% for the period, providing a competitive return on a tax-adjusted basis to the broad market return of 5.14% for the Lehman Aggregate Bond Index. The Federal Reserve lowered the Federal Funds rate during the period in a move to add liquidity to markets that had become constrained due to weakness in subprime mortgages.

For specific information on the Funds and their performance during the reporting period, please review the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds’ shareholder servicing agent at (800) 331-1710. You will also find a wide range of information and resources on our Web site, www.allianzinvestors.com/closedendfunds.

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

We remain dedicated to serving your investment needs.


Sincerely,       Hans W. Kertess Brian S. Shlissel Chairman President & Chief Executive Officer

9.30.07 | PIMCO Municipal Income Funds III Annual Report 1





PIMCO Municipal Income Fund III 
Fund Insights/Performance & Statistics
September 30, 2007 (unaudited)

•  For the fiscal year ended September 30, 2007, PIMCO Municipal Income Fund III returned 3.17% on net asset value and 1.38% on market price, compared with 1.28% and (0.07)%, respectively, for the Lipper Analytical General Municipal Debt Funds (Leveraged) average. •  The municipal bond market underperformed the taxable bond market for the twelve-month period, with the Lehman Municipal Bond Index returning 3.09% and the Lehman Aggregate Bond Index returning 5.14%, respectively. •  Longer maturity municipal bonds underperformed shorter maturity municipals during the reporting period, as the yield curve steepened. For example, yields on five- and 10-year AAA General Obligation yields rose 3 and 11 basis-points, while 20- and 30-year yields rose 25 and 27 basis-points, respectively. Note that when a bond’s yield rises, its price declines, and vice versa. •  Longer maturity municipals also underperformed longer maturity Treasuries for the period. Consequently, interest rate hedging strategies that benefit when longer-term Treasuries lag municipals were negative for performance. •  The Fund’s exposure to tobacco-securitized debt hindered performance, as the increased supply of new issues that were brought to the market weighed on the price of existing bonds. •  The Fund’s exposure to zero-coupon bonds adversely affected performance as intermediate- and longer-duration zero coupons declined in value during the period. •  Emphasis on higher credit-quality bonds benefited performance as lower-rated, more speculative issues underperformed during the latter part of the fiscal year due to liquidity challenges.
Total Return(1): Market Price Net Asset Value (‘‘NAV’’) 1 Year 1.38% 3.17% 3 Year 8.18% 6.80% Commencement of Operations (10/31/02) to 9/30/07 6.60% 6.82%

Common Share Market Price / NAV Performance:

Commencement of Operations (10/31/02) to 9/30/07

    


Market Price / NAV:   Market Price $15.05 NAV $14.53 Premium to NAV 3.58% Market Price Yield(2) 5.58%

Moody’s Ratings
(as a % of total investments)

(1)  Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the beginning of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the beginning of the period and expressing the result as a percentage. The calculation assumes that all of the Fund’s income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of more than one year represents the average annual total return.        An investment in the Fund involves risk, including the loss of principal. Total return, market price, market 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. 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 equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily. (2)  Market Price Yield is determined by dividing the annualized current monthly per share dividend (comprised from net investment income) payable to common shareholders by the market price per common share at September 30, 2007.

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PIMCO California Municipal Income Fund III 
Fund Insights/Performance & Statistics
September 30, 2007 (unaudited)

•  For the fiscal year ended September 30, 2007, PIMCO California Municipal Income Fund III returned 3.54% on net asset value and (11.38)% on market price, compared with 1.57% and (2.14)%, respectively, for the Lipper Analytical California Municipal Debt Funds average. •  During the reporting period, California municipal bonds, as measured by the Lehman California Municipal Bond Index, underperformed the broader national municipal market, as measured by the Lehman Municipal Bond Index, returning 2.98% and 3.09%, respectively. •  The California AAA insured municipal yield curve steepened during the reporting period. For example, five-year maturity AAA municipal yields increased 4 basis-points, while 10-, 20- and 30-year maturities increased 14, 22 and 22 basis-points, respectively. •  The Fund’s exposure to tobacco-securitized debt hindered performance, as the increased supply of new issues that were brought to the market weighed on the price of existing bonds. •  The Fund’s exposure to zero-coupon bonds adversely affected performance as intermediate- and longer-duration zero coupons declined in value during the period. •  Emphasis on higher credit-quality bonds benefited performance as lower-rated, more speculative issues underperformed during the latter part of the fiscal year due to liquidity challenges.
Total Return(1): Market Price Net Asset Value (‘‘NAV’’) 1 Year (11.38)% 3.54% 3 Year 7.53% 7.44% Commencement of Operations (10/31/02) to 9/30/07 5.33% 6.82%

Common Share Market Price / NAV Performance:

Commencement of Operations (10/31/02) to 9/30/07


Market Price / NAV:   Market Price $14.20 NAV $14.48 Discount to NAV (1.93)% Market Price Yield(2) 4.91%

Moody’s Ratings
(as a % of total investments)

(1)  Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the beginning of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the beginning of the period and expressing the result as a percentage. The calculation assumes that all of the Fund’s income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of more than one year represents the average annual total return.        An investment in the Fund involves risk, including the loss of principal. Total return, market price, market 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. 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 equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily. (2)  Market Price Yield is determined by dividing the annualized current monthly per share dividend (comprised from net investment income) payable to common shareholders by the market price per common share at September 30, 2007.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 3





PIMCO New York Municipal Income Fund III 
Fund Insights/Performance & Statistics
September 30, 2007 (unaudited)

•  For the fiscal year ended September 30, 2007, PIMCO New York Municipal Income Fund III returned 1.71% on net asset value and (13.12)% on market price, compared with 1.63% and (0.84)%, respectively, for the Lipper Analytical New York Municipal Debt Funds average. •  During the reporting period, municipal bonds issued within New York, as measured by the Lehman New York Municipal Bond Index, slightly outperformed the national market, as measured by the Lehman Municipal Bond Index, returning 3.19% and 3.09%, respectively. •  The New York AAA insured municipal yield curve steepened during the reporting period. For example, five-year maturity AAA yields increased 2 basis-points, while 10-, 20- and 30-year maturities increased 14, 25, and 28 basis-points, respectively. •  The Fund’s exposure to tobacco-securitized debt hindered performance, as the increased supply of new issues that were brought to the market weighed on the price of existing bonds. •  The Fund’s exposure to zero-coupon bonds adversely affected performance as intermediate- and longer-duration zero coupons declined in value during the period. •  Emphasis on higher credit-quality bonds benefited performance as lower-rated, more speculative issues underperformed during the latter part of the fiscal year due to liquidity challenges.
Total Return(1): Market Price Net Asset Value (‘‘NAV’’) 1 Year (13.12)% 1.71% 3 Year   4.17% 6.43% Commencement of Operations (10/31/02) to 9/30/07   4.09% 6.57%

Common Share Market Price/NAV Performance:

Commencement of Operations (10/31/02) to 9/30/07


Market Price/NAV:   Market Price $13.57 NAV $14.57 Discount to NAV (6.86)% Market Price Yield(2) 4.49%

Moody’s Ratings
(as a % of total investments)

(1)  Past performance is no guarantee of future results. Total return is calculated by subtracting the value of an investment in the Fund at the beginning of each specified period from the value at the end of the period and dividing the remainder by the value of the investment at the beginning of the period and expressing the result as a percentage. The calculation assumes that all of the Fund’s income dividends and capital gain distributions have been reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total return does not reflect broker commissions or sales charges. Total return for a period of more than one year represents the average annual total return.        An investment in the Fund involves risk, including the loss of principal. Total return, market price, market 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. 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 equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily. (2)  Market Price Yield is determined by dividing the annualized current monthly per share dividend (comprised from net investment income) payable to common shareholders by the market price per common share at September 30, 2007.

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PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value

MUNICIPAL BONDS & NOTES–97.1%

     

Alabama–1.1%

              Birmingham, GO, Ser. B (AMBAC) (a),         $ 1,000   5.00%, 12/1/27, (Pre-refunded @ $100, 12/1/12) Aaa/AAA $     1,066,330     2,560   5.00%, 12/1/32, (Pre-refunded @ $100, 8/15/12) Aaa/AAA   2,729,805     5,000   Birmingham Baptist Medical Centers Special Care Facs. Financing Auth. Rev., 5.00%, 11/15/30, Ser. A Baa1/NR   4,788,300     1,500   Colbert Cnty., Northwest Health Care Auth., Health Care Facs. Rev., 5.75%, 6/1/27 Baa3/NR   1,513,890               10,098,325        

Alaska–0.8%

          3,100   Northern Tobacco Securitization Corp. Rev., 5.00%, 6/1/46, Ser. A Baa3/NR   2,589,709         State Housing Finance Corp. Rev.,           3,900   5.00%, 12/1/33, Ser. A Aaa/AAA   3,927,378     1,000   5.25%, 6/1/32, Ser. C (MBIA) Aaa/AAA   1,005,940               7,523,027        

Arizona–2.9%

              Health Facs. Auth. Rev.,           1,000   Beatitudes Project, 5.20%, 10/1/37 NR/NR   904,680     2,200   John C. Lincoln Health Network,               7.00%, 12/1/25, (Pre-refunded @ $102, 12/1/10) (a) NR/BBB   2,461,470     1,500   Maricopa Cnty. Pollution Control Corp., Pollution Control Rev., 5.05%, 5/1/29 (AMBAC) Aaa/AAA   1,543,200         Salt River Project Agricultural Improvement & Power Dist. Rev., Ser. A (h),           5,000   5.00%, 1/1/35 Aa1/AA   5,173,750     16,000   5.00%, 1/1/37 Aa1/AA   16,544,800               26,627,900        

Arkansas–0.1%

          7,000   Arkansas Dev. Finance Auth. Rev., zero coupon, 7/1/46 (AMBAC) Aaa/NR   1,007,930        

California–7.4%

          1,000   Alameda Public Financing Auth. Rev., 7.00%, 6/1/09 NR/NR   998,960     2,000   Chula Vista Community Facs. Dist., Special Tax, 5.25%, 9/1/30 NR/NR   1,917,620         Golden State Tobacco Securitization Corp., Tobacco Settlement Rev.,           8,000   5.00%, 6/1/33, Ser. A-1 Baa3/BBB   7,060,320     27,585   6.25%, 6/1/33, Ser. 2003-A-1 Aaa/AAA   30,272,882     21,000   6.75%, 6/1/39, Ser. 2003-A-1, (Pre-refunded @ $100, 6/1/13) (a) Aaa/AAA   24,312,750     3,060   Statewide Community Dev. Auth. Rev., Baptist Univ.,               9.00%, 11/1/17, Ser. B (b) NR/NR   3,116,304               67,678,836        

Colorado–3.3%

          1,000   Aurora Single Tree Metropolitan Dist., GO, 5.50%, 11/15/31 NR/NR   925,840     9,955   Colorado Springs Rev., 5.00%, 11/15/30, Ser. B (h) Aa2/AA   10,225,477     500   Confluence Metropolitan Dist. Rev, 5.45%, 12/1/34 NR/NR   475,515  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 5





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Colorado–(continued)

              El Paso Cnty., CP (AMBAC),         $ 1,735   5.00%, 12/1/23, Ser. A, (Pre-refunded @ $100, 12/1/12) (a) Aaa/AAA $     1,850,083     1,725   5.00%, 12/1/23, Ser. B Aaa/AAA   1,786,720     2,820   5.00%, 12/1/27, Ser. A, (Pre-refunded @ $100, 12/1/12) (a) Aaa/AAA   3,007,051     1,500   5.00%, 12/1/27, Ser. B Aaa/AAA   1,544,550     1,500   Garfield Cnty. School Dist. Re-2, GO, 5.00%, 12/1/25 (FSA) Aaa/NR   1,549,455     1,000   Health Facs. Auth. Rev., American Baptist Homes,
5.90%, 8/1/37, Ser. A NR/NR   1,001,380     1,500   Housing & Finance Auth. Rev., Evergreen Country Day School, 5.875%, 6/1/37 (b) NR/BB   1,486,335     4,000   Saddle Rock Metropolitan Dist., GO, 5.35%, 12/1/31 (Radian) NR/AA   4,020,400     2,500   School Mines Auxiliary Facs. Rev., 5.00%, 12/1/37 (AMBAC) Aaa/AAA   2,549,925               30,422,731        

Florida–5.6%

          3,480   Brevard Cnty. Health Facs. Auth. Rev., 5.00%, 4/1/34 A2/A   3,459,746     8,000   Highlands Cnty. Health Facs. Auth. Rev., Adventist Health System,               5.25%, 11/15/23, Ser. B, (Pre-refunded @ $100, 11/15/12) (a) A1/A+   8,572,880     2,500   Hillsborough Cnty. Industrial Dev. Auth. Rev., Tampa General Hospital, 5.25%, 10/1/34, Ser. B A3/NR   2,508,900     1,485   Julington Creek Plantation Community Dev. Dist., Special Assessment Rev., 5.00%, 5/1/29 (MBIA) Aaa/AAA   1,528,600     1,000   Orange Cnty. Housing Finance Auth., Multifamily Rev., Palm Grove Gardens, 5.25%, 1/1/28, Ser. G Aaa/NR   1,017,320     15,000   Pinellas Cnty. Health Fac. Auth. Rev., Baycare Health, 5.50%, 11/15/33, (Pre-refunded @ $100, 5/15/13) (a) Aa3/NR   16,405,050     3,895   Sarasota Cnty. Health Fac. Auth. Rev., 5.75%, 7/1/45 NR/NR   3,829,759     7,500   South Miami Health Facs. Auth., Hospital Rev., Baptist Health, 5.25%, 11/15/33, (Pre-refunded @ $100, 2/1/13) (a) Aaa/AA−   8,060,850     5,615   Tampa, Water & Sewer Rev., 5.00%, 10/1/26, Ser. A Aa2/AA   5,774,690               51,157,795        

Georgia–0.6%

          1,750   Fulton Cnty. Rev., 5.125%, 7/1/42, Ser. A NR/NR   1,555,138     4,000   Griffin Combined Public Utility Rev., 5.00%, 1/1/32 (AMBAC) Aaa/AAA   4,134,680               5,689,818        

Idaho–0.8%

              State Building Auth., Building Rev., Ser. A (XLCA),           1,000   5.00%, 9/1/33 Aaa/AAA   1,024,700     5,750   5.00%, 9/1/43 Aaa/AAA   5,867,128               6,891,828        

Illinois–6.4%

          2,250   Chicago, GO, 5.00%, 1/1/31, Ser. A (MBIA) Aaa/AAA   2,290,252         Chicago, Lake Shore East, Special Assessment,           1,600   6.625%, 12/1/22 NR/NR   1,695,504     3,456   6.75%, 12/1/32 NR/NR   3,658,245  

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PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Illinois–(continued)

        $ 500   Chicago Board of Education School Reform, GO, zero coupon, 12/1/28, Ser. A (FGIC) Aaa/AAA $          184,775     3,000   Chicago Kingsbury Redev. Project, Tax Allocation,
6.57%, 2/15/13, Ser. A NR/NR   3,052,230     7,000   Chicago Motor Fuel Tax Rev., 5.00%, 1/1/33, Ser. A (AMBAC) Aaa/AAA   7,135,940     4,000   Chicago Park Dist., GO, 5.00%, 1/1/29, Ser. D (FGIC) Aaa/AAA   4,073,440         Dev. Finance Auth. Rev.,           1,500   5.50%, 5/15/37 NR/NR   1,438,620     1,000   5.875%, 3/1/27, Ser. A NR/NR   991,370     2,000   Christian Homes, Inc., 5.75%, 5/15/31, Ser. A NR/NR   1,942,060     12,795   Peoples Gas Light & Coke, 5.00%, 2/1/33 (AMBAC) (h) Aaa/AAA   12,997,289     1,050   Three Crowns Park Plaza, 5.875%, 2/15/38 NR/NR   1,050,945         Educational Facs. Auth. Rev., Univ. of Chicago,           4,780   5.00%, 7/1/33 Aa1/AA   4,897,062     220   5.00%, 7/1/33, (Pre-refunded @ $100, 7/1/13) (a) Aa1/AA   235,607     165   5.25%, 7/1/41 Aa1/AA   171,293     4,160   5.25%, 7/1/41, (Pre-refunded @ $101, 7/1/11) (a) Aa1/AA   4,439,183         Finance Auth. Rev., Ser. A,           425   6.00%, 3/1/37 NR/NR   422,875     1,500   6.00%, 11/15/37 NR/NR   1,504,395     1,175   Health Facs. Auth. Rev., Elmhurst Memorial Healthcare,
5.50%, 1/1/22 A2/NR   1,222,576     4,283   Round Lake, Special Tax Rev., 6.70%, 3/1/33,
(Pre-refunded @ $102, 3/1/13) (a) NR/NR   4,868,829               58,272,490        

Indiana–3.1%

          7,535   Bond Bank Rev., 5.00%, 2/1/33, Ser. A (FSA) Aaa/AAA   7,710,264     3,000   Brownsburg 1999 School Building Corp. Rev.,               5.25%, 3/15/25, Ser. A, (Pre-refunded @ $100, 9/15/13) (FSA) (a) Aaa/AAA   3,259,590     1,375   Fort Wayne Pollution Control Rev., 6.20%, 10/15/25 Caa1/B−   1,398,045     5,000   Indianapolis Local Public Improvement Board, Tax Allocation,               5.00%, 2/1/29, Ser. G (MBIA) Aaa/AAA   5,124,100         Michigan City Area Wide School Building Corp., Rev. (FGIC),           2,500   zero coupon, 1/15/21 Aaa/AAA   1,382,475     1,000   zero coupon, 7/15/21 Aaa/AAA   540,790     1,000   zero coupon, 1/15/22 Aaa/AAA   525,920         Plainfield Parks Facs. Corp. Lease Rent Rev.,           1,000   5.00%, 1/15/22 (AMBAC) Aaa/AAA   1,030,190         Portage Industrial Economic Dev. Rev.,           1,000   5.00%, 7/15/23 NR/BBB+   993,450     775   5.00%, 1/15/27 NR/BBB+   760,926     3,500   State Dev. Finance Auth., Pollution Control Rev.,               5.00%, 3/1/30 (AMBAC) Aaa/AAA   3,503,850     2,000   Vigo Cnty. Hospital Auth. Rev., 5.70%, 9/1/37 (b) NR/NR   1,994,180               28,223,780  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 7





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Iowa–1.7%

        $ 1,000   Coralville, CP, 5.25%, 6/1/26, Ser. D A2/B+ $     1,021,560     3,715   Finance Auth. Rev., Wedum Walnut Ridge LLC,
5.625%, 12/1/45, Ser. A NR/NR   3,571,193         Tobacco Settlement Auth. of Iowa Rev., Ser. B,           11,010   zero coupon, 6/1/34, (Converts to 5.60% on 12/1/07) Baa3/BBB   10,163,661     1,000   5.60%, 6/1/35, (Pre-refunded @ $101, 6/1/11) (a) NR/AAA   1,076,040               15,832,454        

Kentucky–0.3%

              Economic Dev. Finance Auth., Hospital Facs. Rev.,           1,000   Catholic Healthcare Partners, 5.25%, 10/1/30 Aa3/AA−   1,018,440     1,080   St. Luke’s Hospital, 6.00%, 10/1/19, Ser. B A3/A   1,190,527               2,208,967        

Louisiana–1.0%

              Public Facs. Auth. Rev., Ochsner Clinic Foundation, Ser. B,           5,000   5.50%, 5/15/32, (Pre-refunded @ $100, 5/15/26) (a) A3/NR   5,686,950     1,700   5.50%, 5/15/47 A3/NR   1,721,420     1,595   Tobacco Settlement Financing Corp. Rev.,
5.875%, 5/15/39, Ser. 2001-B Baa3/BBB   1,580,166               8,988,536        

Maryland–0.2%

          500   Health & Higher Educational Facs. Auth. Rev., 5.30%, 1/1/37 NR/NR   473,005     1,500   State Health & Higher Educational Facs. Auth. Rev., Calvert
Health Systems, 5.50%, 7/1/36 A2/NR   1,551,915               2,024,920        

Massachusetts–1.1%

              State Dev. Finance Agcy. Rev.,           1,000   5.75%, 7/1/33, Ser. C, (Pre-refunded @ $101, 7/1/13) (a) A3/A−   1,063,020     750   Linden Ponds, 5.75%, 11/15/35, Ser. A NR/NR   756,817     4,910   State Housing Finance Agcy., Housing Rev., 5.125%, 6/1/43, Ser. H Aa3/AA−   4,957,038     3,225   State Water Pollution Abatement Trust Rev., 5.00%, 8/1/32, Ser. 8 Aaa/AAA   3,301,110               10,077,985        

Michigan–13.8%

          500   Corner Creek Academy East Rev., 5.25%, 11/1/36 A1/BB+   445,545     250   Crescent Academy, CP, 5.75%, 12/1/36 NR/NR   246,363         Detroit Water Supply System Rev.,           33,040   5.00%, 7/1/32, Ser. A (FSA) (h) Aaa/AAA   33,765,228     35,000   5.00%, 7/1/34, Ser. A (MBIA) (h) Aaa/AAA   35,732,550     7,555   5.00%, 7/1/34, Ser. B (MBIA) Aaa/AAA   7,713,126     500   Star International Academy, CP, 6.125%, 3/1/37 NR/BB+   507,240     5,000   State Building Auth. Rev., 5.00%, 10/15/26, Ser. III,
(Pre-refunded @ $100, 10/15/12) (FSA) (a) Aaa/AAA   5,324,300  

8 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Michigan–(continued)

        $ 175   State Hospital Finance Auth. Rev.,               Detroit Medical Center, 5.25%, 8/15/23 Ba3/BB− $ 165,960     4,000   Henry Ford Health System, 5.00%, 3/1/17,
(Pre-refunded @ $100, 3/1/13) (a) A1/A   4,254,760         Oakwood Group, Ser. A,           5,405   5.75%, 4/1/32 A2/A   5,610,768     575   6.00%, 4/1/22 A2/A   612,254     20,000   Trinity Health Credit, 5.375%, 12/1/30 Aa2/AA−   20,574,000     1,000   State Technical Univ. Rev., 5.00% 10/1/33 (XLCA) Aaa/AAA   1,025,570     10,000   Tobacco Settlement Finance Auth. Rev., 6.00%, 6/1/48, Ser. A NR/BBB   9,975,000               125,952,664        

Minnesota–0.4%

          750   Cottage Grove Rev., 5.00%, 12/1/31 NR/NR   673,380     2,400   Upsala Independent School Dist. No. 487, GO, 5.00%, 2/1/28 (FGIC) Aaa/AAA   2,536,416               3,209,796        

Mississippi–0.5%

              Business Finance Corp., Pollution Control Rev.,           3,000   5.875%, 4/1/22 Ba1/BBB   3,009,000     1,250   5.90%, 5/1/22 Ba1/BBB   1,250,500               4,259,500        

Missouri–2.4%

          4,000   Bi-State Dev. Agcy. Rev., Missouri Illinois Metropolitan Dist.,
5.00%, 10/1/32 (FSA) Aaa/AAA   4,123,120     1,350   St. Louis Cnty. Industrial Dev. Auth., Housing Dev. Rev.,
5.20%, 1/20/36 (GNMA) NR/AAA   1,367,969         St. Louis Industrial Dev. Auth. Rev. (GNMA),           1,500   5.125%, 12/20/29 NR/AAA   1,528,725     1,500   5.125%, 12/20/30 NR/AAA   1,521,795     4,365   State Environmental Improvement & Energy Res. Auth.,               Water Pollution Control Rev., 5.00%, 7/1/23, Ser. B Aaa/NR   4,542,175     7,500   State Health & Educational Facs. Auth., Health Facs. Rev.,               St. Anthony’s Medical Center, 6.25%, 12/1/30, (Pre-refunded @               $101, 12/1/10) (a) A2/NR   8,169,525     250   Township of Jennings Rev., 5.00%, 11/1/23 NR/NR   240,162     500   Univ. Place Transportation Dev. Dist., Special Assessment,
5.00%, 3/1/32 (c) NR/NR   476,280               21,969,751        

Montana–1.3%

          11,250   Forsyth Pollution Control Rev., Puget Sound Energy,
5.00%, 3/1/31 (AMBAC) Aaa/AAA   11,635,763        

Nevada–0.4%

          3,355   Henderson Health Care Fac. Rev., Catholic Healthcare West,               5.125%, 7/1/28, (Pre-refunded @ $101, 7/1/08) (a) A2/A   3,427,971  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 9





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

New Hampshire–0.5%

              Manchester Water Works Rev. (FGIC),         $ 1,500   5.00%, 12/1/28 Aaa/AAA $     1,554,570     3,250   5.00%, 12/1/34 Aaa/AAA   3,348,735               4,903,305        

New Jersey–4.4%

          1,000   Camden Cnty., Improvement Auth. Rev., Cooper Health System, 5.00%, 2/15/35, Ser. A Baa3/BBB   944,460         Economic Dev. Auth.,           4,500   Kapkowski Road Landfill Project, Special Assessment,
6.50%, 4/1/28 Baa3/NR   5,078,115     300   Newark Airport Rev., 7.00%, 10/1/14 Ba1/NR   303,288     450   Seashore Gardens, 5.375%, 11/1/36 NR/NR   423,256         Health Care Facs. Financing Auth. Rev.,           2,500   Middlesex Cnty. Pollution Control Auth. Rev., 5.75%, 9/15/32 Baa3/BBB−   2,581,250     3,000   Pascack Valley Hospital, 6.625%, 7/1/36 (j) NR/CC   1,500,000     2,000   Somerset Medical Center, 5.50%, 7/1/33 Ba1/NR   1,943,520     2,000   South Port Corp., 5.10%, 1/1/33 NR/A   2,044,860     1,150   Trinitas Hospital, 5.25%, 7/1/30, Ser. A Baa3/BBB−   1,109,945     1,500   State Educational Facs. Auth. Rev., 6.00%, 7/1/25, Ser. D NR/NR   1,566,360         Tobacco Settlement Financing Corp. Rev.,           9,250   5.00%, 6/1/41, Ser. 1A Baa3/BBB   7,828,275     525   6.00%, 6/1/37, (Pre-refunded @ $100, 6/1/12) (a) Aaa/AAA   577,411     1,000   6.125%, 6/1/24 Aaa/AAA   1,059,680     230   6.125%, 6/1/42, (Pre-refunded @ $100, 6/1/12) (a) Aaa/AAA   254,182     350   6.25%, 6/1/43, (Pre-refunded @ $100, 6/1/13) (a) Aaa/AAA   395,378     10,750   6.75%, 6/1/39, (Pre-refunded @ $100, 6/1/13) (a) Aaa/AAA   12,416,035               40,026,015        

New Mexico–0.1%

          1,000   Farmington Pollution Control Rev., 5.80%, 4/1/22 Baa2/BBB   1,005,650        

New York–3.5%

          10,000   Metropolitan Transportation Auth. Rev., 5.25%, 11/15/32, Ser. B, (Pre-refunded @ $100, 11/15/13) (a) A2/AAA   10,915,400         New York City Municipal Water Finance Auth., Water & Sewer System Rev.,           5,000   5.00%, 6/15/35, Ser. C Aa2/AA+   5,122,550     8,180   5.00%, 6/15/37, Ser. D (h) Aa2/AA+   8,400,287     1,500   5.00%, 6/15/39, Ser. A Aa2/AA+   1,535,025     3,800   State Dormitory Auth. Rev., State Personal Income Tax,               5.00%, 3/15/32, (Pre-refunded @ $100, 3/15/13) (a) Aa3/AAA   4,066,912     2,000   State Environmental Facs. Corp. Rev., 5.00%, 6/15/28 Aaa/AAA   2,074,080               32,114,254  

10 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

North Carolina–1.3%

        $ 2,000   Charlotte-Mecklenburg Hospital Auth., Healthcare System Rev.,               5.00%, 1/15/33, Ser. A, (Pre-refunded @ $100, 1/15/13) (a) Aa3/AA− $     2,129,560         Eastern Municipal Power Agcy., Power System Rev.,           2,000   5.125%, 1/1/23, Ser. D Baa1/BBB   2,040,820     2,000   5.125%, 1/1/26, Ser. D Baa1/BBB   2,032,460     3,795   5.375%, 1/1/17, Ser. C Baa1/BBB   3,989,911     1,500   Medical Care Commission, Health Care Facs. Rev.,               Cleveland Cnty., 5.00%, 7/1/35 (AMBAC) Aaa/AAA   1,539,600               11,732,351        

Ohio–0.8%

          2,500   Lorain Cnty. Hospital Rev., Catholic Healthcare, 5.375%, 10/1/30 Aa3/AA−   2,564,275         Ohio Air Quality Dev. Auth. Rev., Dayton Power & Light Co.,           5,000   4.80%, 1/1/34, Ser. B (FGIC) (h) Aaa/AAA   5,035,050               7,599,325        

Pennsylvania–4.1%

              Allegheny Cnty. Hospital Dev. Auth. Rev.,           11,300   5.375%, 11/15/40, Ser. A Ba2/BB   10,836,135     4,350   9.25%, 11/15/30, Ser. B, (Pre-refunded @ $102, 11/15/10) (a) Ba3/AAA   5,143,179     1,500   Cumberland Cnty. Auth., Retirement Community Rev.,
Wesley Affiliated Services, 7.25%, 1/1/35, Ser. A,
(Pre-refunded @ $101, 1/1/13) (a) NR/NR   1,756,950     3,250   Delaware River Toll Bridge, Commission Bridge Rev., 5.00%, 7/1/28 A2/A−   3,332,875     1,250   Harrisburg Auth. Rev., 6.00%, 9/1/36 NR/NR   1,263,875     3,000   Lehigh Cnty. General Purpose Auth. Rev., St. Luke’s Bethlehem
Hospital, 5.375%, 8/15/33, (Pre-refunded @ $100, 8/15/13) (a) Baa1/BBB   3,264,330     5,000   Philadelphia School Dist., GO,
5.125%, 6/1/34, Ser. D, (Pre-refunded @ $100, 6/1/14) (FGIC) (a) Aaa/AAA   5,429,300     6,300   St. Mary Hospital Auth., Bucks Cnty. Rev., 5.00%, 12/1/28,
(Partially Pre-refunded @ $101, 6/1/08) (a) NR/NR   6,091,911               37,118,555        

Puerto Rico–0.3%

          2,200   Electric Power Auth. Power Rev.,               5.125%, 7/1/29, Ser. NN, (Pre-refunded @ $100, 7/1/13) (a) A3/BBB+   2,373,778        

South Carolina–1.7%

          7,500   Florence Cnty. Rev., McLeod Regional Medical Center,               5.00%, 11/1/31, Ser. A (FSA) Aaa/AAA   7,752,450         Jobs Economic Dev. Auth. Rev., Bon Secours Health System,           6,700   5.625%, 11/15/30 A3/A−   6,904,886     750   6.00%, 11/15/37, Ser. A (c) NR/NR   750,000               15,407,336        

South Dakota–0.2%

          1,705   Minnehaha Cnty. Health Facs. Rev., Bethany Lutheran,               5.375%, 12/1/27 NR/NR   1,621,319  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 11





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Tennessee–0.1%

        $ 1,250   Knox Cnty. Health Educational & Housing Facs., Board Hospital, Facs. Rev., Catholic Healthcare Partners, 5.25%, 10/1/30 Aa3/AA− $     1,275,275        

Texas–14.1%

          4,135   Canyon Independent School Dist., GO, 5.00%, 2/15/28, Ser. A, (Pre-refunded @ $100, 2/15/13) (PSF-GTD) (a) NR/AAA   4,410,887     2,500   Columbia & Brazoria Independent School Dist., GO,               5.00%, 8/1/29, (PSF-GTD) NR/AAA   2,568,450     1,300   Comal Cnty. Health Facs. Dev., McKenna Memorial Hospital Project Rev., 6.25%, 2/1/32 Baa2/BBB−   1,343,173     6,810   Crowley Independent School Dist., GO,               4.75%, 8/1/35 (PSF-GTD) (h) Aaa/AAA   6,831,656     12,975   Dallas Area Rapid Transit Rev., 5.00%, 12/1/32,               (Pre-refunded@$100,12/1/12)(FGIC)(a)(h) Aaa/AAA   13,835,632         Denton Independent School Dist., GO, (PSF-GTD),           5,745   zero coupon, 8/15/26, (Pre-refunded @ $44.73, 8/15/12) (a) Aaa/AAA   2,141,621     255   zero coupon, 8/15/26 Aaa/AAA   91,981     5,745   zero coupon, 8/15/27, (Pre-refunded @ $42.17, 8/15/12) (a) Aaa/AAA   2,019,023     255   zero coupon, 8/15/27 Aaa/AAA   86,593     4,785   zero coupon, 8/15/28, (Pre-refunded @ $39.75, 8/15/12) (a) Aaa/AAA   1,585,175     215   zero coupon, 8/15/28 Aaa/AAA   68,720     5,745   zero coupon, 8/15/29, (Pre-refunded @ $37.46, 8/15/12) (a) Aaa/AAA   1,793,532     255   zero coupon, 8/15/29 Aaa/AAA   76,704     1,915   zero coupon, 8/15/30, (Pre-refunded @ $35.30, 8/15/12) (a) Aaa/AAA   563,316     85   zero coupon, 8/15/30 Aaa/AAA   24,068     7,660   zero coupon, 8/15/31, (Pre-refunded @ $33.25, 8/15/12) (a) Aaa/AAA   2,122,663     340   zero coupon, 8/15/31 Aaa/AAA   90,603     10,115   5.00%, 8/15/33 (h) Aaa/AAA   10,342,183     4,400   Harris Cnty., GO, 5.125%, 8/15/31,
(Pre-refunded @ $100, 8/15/12) (a) Aa1/AA+   4,696,912         Harris Cnty. Health Facs. Dev. Corp. Rev., Ser. A,           5,000   Christus Health, 5.375%, 7/1/29,
(Pre-refunded @ $101, 7/1/09) (MBIA) (a) Aaa/AAA   5,201,500     2,750   St. Luke’s Episcopal Hospital, 5.375%, 2/15/26,
(Pre-refunded @ $100, 8/15/11) NR/AAA   2,927,678     19,500   Harris Cnty. Rev., 5.125%, 8/15/32,
(Pre-refunded @ $100, 5/1/13) (FSA) (a) Aaa/AAA   20,833,800     5,000   Houston Water & Sewer System Rev.,               5.00%, 12/1/30, Ser. A, (Pre-refunded @ $100, 12/1/12) (FSA) (a) Aaa/AAA   5,326,800         Judson Independent School Dist., GO (PSF-GTD),           6,535   5.00%, 2/1/30, (Pre-refunded @ $100, 2/1/11) (a) Aaa/NR   6,829,663     465   5.00%, 2/1/30 Aaa/NR   473,091     11,950   Mansfield Independent School Dist., GO, 5.00%, 2/15/28
(PSF-GTD) (h) Aaa/AAA   12,271,574  

12 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Texas–(continued)

              Mesquite Independent School Dist. No. 1, GO, Ser. A (PSF-GTD),         $ 1,365   zero coupon, 8/15/16 NR/AAA $ 930,220     1,000   zero coupon, 8/15/18 NR/AAA   612,160     1,000   zero coupon, 8/15/19 NR/AAA   575,460     1,000   zero coupon, 8/15/20 NR/AAA   541,910     2,105   Northwest Harris Cnty. Municipal Utility Dist. No. 16, GO, 5.30%, 10/1/29 (Radian) NR/AA   2,120,030     2,000   Sabine River Auth. Rev., 5.20%, 5/1/28 Baa2/BB   1,845,500         Univ. Rev.,           2,000   5.00%, 7/1/26, Ser. B, (Pre-refunded @ $100, 7/1/14) (a) Aaa/AAA   2,158,780     11,115   5.00%, 8/15/33, Ser. B (h) Aaa/AAA   11,398,210               128,739,268        

Utah–0.4%

          1,750   Cnty. of Weber, IHC Health Services Rev., 5.00%, 8/15/30 Aa1/AA+   1,759,048     750   Spanish Fork City Rev., 5.70%, 11/15/36 NR/NR   748,890     720   Utah Cnty. Lincoln Academy Charter School, GO,               5.875%, 6/15/37, Ser. A (b) NR/NR   722,304               3,230,242        

Virginia–0.1%

          1,000   James City Cnty. Economic Dev. Auth. Rev., 5.50%, 7/1/37, Ser. A NR/NR   948,150        

Washington–10.2%

          6,375   Chelan Cnty. Public Utility Dist. Rev.,
5.125%, 7/1/33, Ser. C (AMBAC) Aaa/AAA   6,562,297         King Cnty. Sewer Rev., Ser A (h),           10,000   5.00%, 1/1/35 (FGIC) Aaa/AAA   10,239,800     15,000   5.00%, 1/1/35 (FSA) Aaa/AAA   15,291,600     21,625   Port Tacoma, GO, 5.00%, 12/1/33,
(Pre-refunded @ $100, 12/1/13) (AMBAC) (a)(h) Aaa/AAA   23,258,769     10,000   Seattle Drain & Wastewater Rev., 5.00%, 7/1/32 (FGIC) (h) Aaa/AAA   10,227,900     3,400   State Housing Finance Commission Rev., Skyline at First Hill,               5.625%, 1/1/38, Ser. A NR/NR   3,339,072     22,575   Tobacco Settlement Auth., Tobacco Settlement Rev., 6.50%, 6/1/26 Baa3/BBB   23,703,073               92,622,511        

Wisconsin–0.1%

          560   Badger Tobacco Asset Securitization Corp. Rev., 6.00%, 6/1/17 Baa3/BBB   583,929     700   Milwaukee Redev. Auth. Rev., 5.65%, 8/1/37, Ser. A NR/NR   676,459               1,260,388         Total Municipal Bond & Notes (cost–$847,943,201)     885,160,489  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 13





PIMCO Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value

VARIABLE RATE NOTES (d)(e)–2.0%

     

Florida–0.3%

        $ 2,554   State Turnpike Auth. Rev., 7.38%, 7/1/31, Ser. 1450 (b)(i) Aa2/NR $ 2,577,752        

New York–1.5%

          4,660   Liberty Dev. Corp. Rev., 9.92%, 10/1/35, Ser. 1451 (b)(i) Aa3/BBB+   6,190,577     6,000   State Dormitory Auth. Rev., Univ. & College Improvement.,               8.55%, 3/15/35, Ser. 1216 (b)(i) NR/AAA   6,997,500               13,188,077        

Ohio–0.2%

          2,075   Ohio Air Quality Dev. Auth. Rev., 7.51%, 1/1/34, Ser. 1223 (FGIC) (b)(i) Aaa/AAA   2,147,646        

Pennsylvania–0.0%

          350   Washington Cnty. Redev. Auth., Tax Allocation,
5.45%, 7/1/35, Ser. A NR/NR   339,741         Total Variable Rate Notes (cost–$18,736,791)     18,253,216  

VARIABLE RATE DEMAND NOTES (e)(f)–0.6%

     

Massachusetts–0.1%

          1,090   Health & Educational Facs. Auth. Rev., 3.80%, 10/1/07, Ser. R VMIG1/A-1+   1,090,000        

Michigan–0.3%

          2,200   Univ. Rev., 4.00%, 10/1/07, Ser. A VMIG1/A-1+   2,200,000        

Montana–0.2%

          2,000   Fac. Finance Auth. Rev., Sister of Charity, 4.04%, 10/1/07, Ser. A VMIG1/A-1+   2,000,000         Total Variable Rate Demand Notes (cost–$5,290,000)     5,290,000  

U.S. TREASURY BILLS (g)–0.3%

  2,495   3.77%-4.62%,11/29/07-12/13/07 (cost–$2,476,136)     2,476,136         Total Investments (cost–$874,446,128)–100.0% $ 911,179,841  

14 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value

CALIFORNIA MUNICIPAL BONDS & NOTES–91.9%

$ 1,000   Alameda Public Financing Auth. Rev., 7.00%, 6/1/09 NR/NR $        998,960         Assoc. of Bay Area Gov’t Finance Auth. Rev., Odd Fellows Home,           3,200   5.20%, 11/15/22 NR/A+   3,317,472     11,725   5.35%, 11/15/32 NR/A+   12,137,486         Burbank Public Finance Auth., Tax Allocation, San Fernando Redev. Project,           1,135   5.50%, 12/1/28 NR/BBB   1,163,477     1,000   5.50%, 12/1/33 NR/BBB   1,019,260     2,000   Butte-Glenn Community College, GO, 5.00%, 8/1/26, Ser. A (MBIA) Aaa/NR   2,080,780     2,000   Capistrano Unified School Dist., Community Fac. Dist., Special Tax,               6.00%, 9/1/32, (Pre-refunded @ $100, 9/1/13) (a) NR/NR   2,254,600     500   Carson Public Financing Auth., Special Assessment,               5.00%, 9/2/31, Ser. B NR/NR   468,200     1,000   Cathedral City Public Financing Auth., Tax Allocation,               5.00%, 8/1/33, Ser. A (MBIA) Aaa/AAA   1,030,830     1,150   Ceres Redev. Agcy., Tax Allocation, 5.00%, 11/1/33 (MBIA) Aaa/AAA   1,194,160         Ceres Unified School Dist., GO (FGIC),           2,825   zero coupon, 8/1/28 Aaa/AAA   878,095     2,940   zero coupon, 8/1/29 Aaa/AAA   859,744         Chula Vista Community Facs. Dist., Special Tax,           2,000   5.125%, 9/1/36 NR/NR   1,861,920     1,600   5.75%, 9/1/33 NR/NR   1,611,024     675   6.15%, 9/1/26 NR/NR   701,676     1,620   6.20%, 9/1/33 NR/NR   1,672,358     1,000   City of Carlsbad, Special Assessment, 6.00%, 9/2/34 NR/NR   1,018,890         Contra Costa Cnty. Public Financing Auth., Tax Allocation, Ser. A,           1,415   5.625%, 8/1/33 NR/BBB   1,449,781     6,585   5.625%, 8/1/33, (Pre-refunded @ $100, 8/1/13) (a) NR/BBB   7,283,668     3,775   Cucamonga School Dist., CP, 5.20%, 6/1/27 NR/A−   3,827,737         Educational Facs. Auth. Rev.,           2,455   Loyola Marymount Univ., zero coupon, 10/1/34 (MBIA) Aaa/NR   668,055     5,000   Pepperdine Univ., 5.00%, 9/1/33, Ser. A (FGIC) Aaa/AAA   5,160,000     500   Franklin-McKinley School Dist., GO, 5.00%, 8/1/27, Ser. B,               (Pre-refunded@$100,8/1/13)(FSA)(a) Aaa/AAA   538,660         Fremont Community Facs. Dist. No. 1, Special Tax,           1,250   5.30%, 9/1/30 NR/NR   1,206,550     5,000   6.30%, 9/1/31 NR/NR   5,137,000     9,500   Fresno School Unified Dist., GO, 6.00%, 8/1/26, Ser. A (MBIA) Aaa/AAA   11,231,660     4,380   Glendale Electric Works Rev., 5.00%, 2/1/27 (MBIA) Aaa/AAA   4,515,911         Golden State Tobacco Securitization Corp. Tobacco Settlement Rev.,           6,000   5.00%, 6/1/33, Ser. A-1 Baa3/BBB   5,295,240     10,000   5.00%, 6/1/35, Ser. A (FGIC) (h) Aaa/AAA   10,222,800     4,000   5.00%, 6/1/45, Ser. A (FGIC-TCRS) (h) Aaa/AAA   4,076,200  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 15





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value $ 9,000   5.00%, 6/1/45, Ser. A (AMBAC-TCRS) (h) Aaa/AAA $     9,171,450     18,000   6.25%, 6/1/33, Ser. 2003-A-1 Aaa/AAA   19,753,920     38,490   6.75%, 6/1/39, Ser. 2003-A-1, (Pre-refunded @ $100, 6/1/13) (a) Aaa/AAA   44,561,798         Health Facs. Finance Auth. Rev.,           5,000   Adventist Health System, 5.00%, 3/1/33 NR/A   4,957,150     6,000   Cottage Health System, 5.00%, 11/1/33, Ser. B (MBIA) Aaa/AAA   6,148,140     5,000   Kaiser Permanente, 5.00%, 10/1/18, Ser. B A3/AAA   5,114,550         Paradise VY Estates (CA Mtg. Ins.),           2,000   5.125%, 1/1/22 NR/A+   2,053,920     1,550   5.25%, 1/1/26 NR/A+   1,592,005     2,000   Sutter Health, 6.25%, 8/15/35, Ser. A Aa3/AA−   2,127,280         Infrastructure & Economic Dev. Bank Rev.,           7,750   Bay Area Toll Bridges, 5.00%, 7/1/36, (Pre-refunded @               $100, 1/1/28) (AMBAC) (a)(h) Aaa/AAA   8,368,450         Kaiser Assistance Corp.,           3,000   5.50%, 8/1/31, Ser. B A2/A   3,087,000     8,000   5.55%, 8/1/31, Ser. A NR/A+   8,252,080     3,725   La Mesa-Spring Valley School Dist., GO, 5.00%, 8/1/26, Ser. A,               (Pre-refunded@$100,8/1/12)(FGIC)(a) Aaa/AAA   3,974,463     20   Lancaster Financing Auth., Tax Allocation, 4.75%, 2/1/34 (MBIA) Aaa/AAA   20,089     825   Lee Lake Water Dist. Community Facs. Dist. No. 2, Montecito               Ranch, Special Tax, 6.125%, 9/1/32 NR/NR   838,010     5,000   Long Beach Community College Dist., GO, 5.00%, 5/1/28, Ser. A,               (Pre-refunded@$100,5/1/13)(MBIA)(a) Aaa/AAA   5,371,650         Los Angeles Department of Water & Power Rev. (h),           6,000   4.75%, 7/1/30, Ser. A (FSA) Aaa/AAA   6,057,660     10,000   5.00%, 7/1/30 Aa3/AA−   10,275,400     20,000   5.00%, 7/1/35 (FSA) Aaa/AAA   20,712,600     3,000   Los Angeles Unified School Dist., GO, 5.125%, 1/1/27, Ser. E,               (Pre-refunded@$100,7/1/12)(MBIA)(a) Aaa/AAA   3,211,260     5,280   Modesto Irrigation Dist., CP, 5.00%, 7/1/33, Ser. A (MBIA) Aaa/AAA   5,417,333     4,585   Moreno Valley Unified School Dist. Community Facs. Dist.,               Special Tax, 5.20%, 9/1/36 NR/NR   4,304,902     2,180   Murrieta Valley Unified School Dist., Special Tax,               6.40%, 9/1/24, (Pre-refunded @ $102, 9/1/09) (a) NR/NR   2,339,554     5,000   Oakland, GO, 5.00%, 1/15/33, Ser. A (MBIA) Aaa/AAA   5,132,600         Oakland Redev. Agcy., Tax Allocation, (Pre-refunded @ $100,
3/1/13) (a),         985   5.25%, 9/1/27 NR/A   1,067,257     1,545   5.25%, 9/1/33 NR/A   1,675,599     5,000   Orange Cnty. Community Facs. Dist., Ladera Ranch, Special Tax,               5.55%, 8/15/33, Ser. A NR/NR   4,986,000     5,000   Orange Cnty. Unified School Dist., CP, 4.75%, 6/1/29 (MBIA) Aaa/AAA   5,026,650  

16 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value       Orange Cnty. Water Dist. Rev., CP (MBIA),         $ 1,000   5.00%, 8/15/28, Ser. B Aaa/AAA $     1,024,960     5,525   5.00%, 8/15/34, Ser. B (h) Aaa/AAA   5,654,340     5,000   Pajaro Valley Unified School Dist., GO, 5.00%, 8/1/26, Ser. A               (Pre-refunded@$100,8/1/13)(FSA)(a)(h) Aaa/AAA   5,386,600     2,000   Palm Desert Financing Auth., Tax Allocation, 5.00%, 4/1/25,               Ser. A (MBIA) Aaa/AAA   2,075,160     6,455   Pasadena Water Rev., 5.00%, 6/1/33 (FGIC) (h) Aaa/AAA   6,637,096     1,410   Pomona Public Financing Auth. Rev., 5.00%, 12/1/37,               Ser. AF (MBIA) Aaa/AAA   1,449,254         Poway Unified School Dist., Community Facs. Dist. No. 6,
Special Tax,           3,650   5.125%, 9/1/28 NR/NR   3,547,216     1,285   6.05%, 9/1/25 NR/NR   1,319,027     2,100   6.125%, 9/1/33 NR/NR   2,141,811     5,000   Riverside, CP, 5.00%, 9/1/33 (AMBAC) Aaa/AAA   5,120,500     500   Rocklin Unified School Dist. Community Facs., Special Tax,               5.00%, 9/1/29 (MBIA) Aaa/AAA   514,660     1,360   Sacramento City Financing Auth. Rev., North Natomas CFD No. 2,               6.25%, 9/1/23, Ser. A NR/NR   1,379,448     10,820   Sacramento Cnty. Water Financing Auth. Rev.,               5.00%, 6/1/34, (Pre-refunded @ $100, 6/1/13) (AMBAC) (a)(h) NR/NR   11,634,962     8,000   Sacramento Muni Utility Dist., Electric Rev., 5.00%, 8/15/33,               Ser R (MBIA) (h) Aaa/AAA   8,232,880     12,075   San Diego Community College Dist., GO, 5.00%, 5/1/28,               Ser. A (FSA) (h) Aaa/AAA   12,453,551         San Diego Community Facs. Dist. No. 3, Special Tax, Ser. A (b)(i),           890   5.60%, 9/1/21 NR/NR   882,319     580   5.70%, 9/1/26 NR/NR   570,807     1,700   5.75%, 9/1/36 NR/NR   1,654,610         San Diego Unified School Dist., GO (FSA),           480   5.00%, 7/1/26, Ser. C Aaa/AAA   511,195     11,000   5.00%, 7/1/26, Ser. E Aaa/AAA   11,727,430     8,425   5.00%, 7/1/28, Ser. E Aaa/AAA   8,982,145     1,500   San Diego Univ. Foundation Auxiliary Organization, Rev.,               5.00%, 3/1/27, Ser. A (MBIA) Aaa/AAA   1,539,300     3,000   San Jose, Libraries & Parks, GO, 5.125%, 9/1/31 Aa1/AA+   3,093,570     15,700   San Marcos Public Facs. Auth., Tax Allocation, 5.00%, 8/1/33               Ser A. (FGIC) (h) Aaa/AAA   16,113,695         Santa Ana Unified School Dist., GO, Ser. B (FGIC),           2,515   zero coupon, 8/1/26 Aaa/AAA   1,046,818     3,520   zero coupon, 8/1/28 Aaa/AAA   1,318,698     2,500   zero coupon, 8/1/30 Aaa/AAA   842,850  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 17





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value $ 3,780   zero coupon, 8/1/31 Aaa/AAA $     1,209,487     3,770   zero coupon, 8/1/32 Aaa/AAA   1,144,384     1,250   Santa Clara Valley Transportation Auth., Sales Tax Rev.,               5.00%, 6/1/26, Ser. A, (Pre-refunded @ $100, 6/1/11) (MBIA) (a) Aaa/AAA   1,316,050         Santa Margarita Water Dist., Special Tax,           1,820   6.25%, 9/1/29 NR/NR   1,876,365     4,125   6.25%, 9/1/29, (Pre-refunded @ $102, 9/1/09) (a) NR/NR   4,412,223     3,550   Santa Monica Community College Dist., GO, zero coupon, 8/1/27,               Ser. C (MBIA) Aaa/AAA   1,310,412     1,205   Sequoia Union High School Dist., GO, 5.00%, 7/1/23,               (Pre-refunded@$102,7/1/11)(MBIA)(a) Aaa/NR   1,291,218         South Tahoe JT Powers Financing Auth. Rev.,           2,500   5.125%, 10/1/09 NR/NR   2,500,000     4,425   5.45%, 10/1/33 NR/BBB   4,497,260         Southern CA Public Power Auth., Power Project Rev.,               Magnolia Power, Ser. A-2003-1 (Pre-refunded @ $100, 7/1/13) (AMBAC) (a),           12,200   5.00%, 7/1/33 Aaa/AAA   13,130,982     15,010   5.00%, 7/1/33 (h) Aaa/AAA   16,155,413     4,095   State Department Veteran Affairs Home Purchase Rev.,               5.35%, 12/1/27, Ser. A (AMBAC) Aaa/AAA   4,280,954         State Public Works Board Lease Rev.,           1,105   Patton, 5.375%, 4/1/28 A2/A   1,147,786     4,600   Univ. CA M.I.N.D. Inst., 5.00%, 4/1/28, Ser. A Aa2/AA−   4,706,352     3,505   Statewide Community Dev. Auth., Internext Group, CP,               5.375%, 4/1/30 NR/BBB   3,509,942         Statewide Community Dev. Auth. Rev.,           1,150   Baptist Univ., 5.50%, 11/1/38, Ser. A NR/NR   1,136,775     2,500   Berkeley Montessori School, 7.25%, 10/1/33 NR/NR   2,580,725         Health Fac.,           7,300   Jewish Home, 5.50%, 11/15/33, (CA St. Mtg.) NR/A+   7,614,776     15,000   Memorial Health Services, 5.50%, 10/1/33, Ser. A A3/A+   15,450,750     1,250   Huntington Park Chapter School, 5.25%, 7/1/42, Ser. A NR/NR   1,172,538     10,000   Sutter Health, 5.50%, 8/15/34, Ser. B Aa3/AA−   10,348,200     2,500   Valleycare Health, 5.125%, 7/15/31, Ser. A NR/NR   2,347,875     975   Windrush School Rev., 5.50%, 7/1/37 NR/NR   945,770     2,000   Tamalpais Union High School Dist., GO, 5.00%, 8/1/26 (MBIA) Aaa/AAA   2,063,860     2,000   Temecula Public Financing Auth., Crowne Hill, Special Tax,               6.00%, 9/1/33, Ser. A NR/NR   2,044,720         Tobacco Securitization Agcy. Rev.,               Alameda Cnty.,           8,100   5.875%, 6/1/35 Baa3/NR   8,082,747     7,000   6.00%, 6/1/42 Baa3/NR   7,016,240  

18 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value $ 4,910   Gold Cnty., zero coupon, 6/1/33 NR/BBB $     1,022,213     2,000   Kern Cnty., 6.125%, 6/1/43, Ser. A NR/BBB   2,014,680     5,000   Tobacco Securitization Auth. of Southern California Rev.,               5.00%, 6/1/37, Ser. A-1 Baa3/BBB   4,326,150     2,950   Torrance Medical Center Rev., 5.50%, 6/1/31, Ser. A A1/A+   3,051,303         Univ. Rev., (FSA) (h)           5,500   4.75%, 5/15/35, Ser. F Aaa/AAA   5,518,315     21,125   5.00%, 9/1/33, Ser. Q (Pre-refunded @ $101, 9/1/11) (a) Aaa/AAA   22,497,491     2,355   5.00%, 9/1/34, Ser. Q (Pre-refunded @ $101, 9/1/11) (a) Aaa/AAA   2,508,004     4,000   Vernon Electric System Rev., Malburg Generating Station,               5.50%, 4/1/33, (Pre-refunded @ $100, 4/1/08) (a) Aaa/NR   4,041,800     1,000   West Basin Municipal Water Dist. Rev., CP,               5.00%, 8/1/30, Ser. A (MBIA) Aaa/AAA   1,030,490     2,500   William S. Hart Union High School Dist., Special Tax,               6.00%, 9/1/33 NR/NR   2,555,900     2,750   Woodland Finance Auth., Lease Rev., 5.00%, 3/1/32 (XLCA) Aaa/AAA   2,832,225         Total California Municipal Bonds & Notes (cost–$553,938,251)     582,028,241  

OTHER MUNICIPAL BONDS & NOTES–5.3%

     

Florida–0.7%

          4,720   Sarasota Cnty. Health Fac. Auth. Rev., 5.625%, 7/1/27 NR/NR   4,716,743        

Indiana–0.8%

          5,000   Vigo Cnty. Hospital Auth. Rev., 5.70%, 9/1/37 (b) NR/NR   4,985,450        

New York–0.4%

          2,490   State Dormitory Auth. Rev. Hospital Rev., 6.25%, 8/15/15 (FHA) Aa2/AAA   2,733,074        

Pennsylvania–0.8%

              Allegheny Cnty. Hospital Dev. Auth. Rev., Ser. A,           1,000   5.00%, 11/15/28 Ba2/BB   937,930     4,000   5.375%, 11/15/40 Ba2/BB   3,835,800               4,773,730        

Puerto Rico–2.3%

          1,500   Electric Power Auth. Power Rev., 5.125%, 7/1/29, Ser. NN, (Pre-refunded @ $100, 7/1/13) (a) A3/BBB+   1,618,485         Public Building Auth. Rev.,           4,420   5.00%, 7/1/36, Ser. I (GTD) Baa3/BBB−   4,442,277     290   5.25%, 7/1/36, Ser. D Baa3/BBB−   296,568         Puerto Rico Sales Tax Financing Corp., Rev., Ser. A,           23,200   zero coupon, 8/1/47 (AMBAC) Aaa/AAA   3,270,736     29,200   zero coupon, 8/1/54 (AMBAC) Aaa/AAA   2,877,660     26,300   zero coupon, 8/1/56 A1/A+   2,175,536               14,681,262  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 19





PIMCO California Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

South Dakota–0.3%

        $ 2,000   Minnehaha Cnty. Health Facs. Rev., Bethany Lutheran,               5.50%, 12/1/35 NR/NR $ 1,895,840         Total Other Municipal Bonds & Notes (cost–$32,610,587)   33,786,099  

CALIFORNIA VARIABLE RATE NOTES (b)(d)(e)(i)–1.2%

  2,000   Golden State Tobacco Securitization Corp. Rev.,               8.977%, 6/1/35 (FGIC) Aaa/AAA   2,222,800         Los Angeles Unified School Dist., GO (MBIA) (b),           1,745   7.324%, 1/1/23 NR/NR   1,864,463     2,090   10.473%, 1/1/11 NR/NR   3,130,276         Total California Variable Rate Notes (cost–$7,175,228)   7,217,539  

OTHER VARIABLE RATE NOTES (d)(e)–0.6%

     

Puerto Rico–0.6%

          3,800   Public Finance Corp. Rev., 5.75%, 8/1/27, Ser. A (cost–$3,987,995) Ba1/BBB−   4,046,088  

CALIFORNIA VARIABLE RATE DEMAND NOTES (e)(f)–0.8%

  5,100   State Department of Water Res. Rev., 3.80%, 10/1/07               (cost–$5,100,000) VMIG1/A-1+   5,100,000  

U.S. TREASURY BILLS (g)–0.2%

  1,500   3.77%-4.62%, 11/29/07-12/13/07 (cost–$1,488,499)     1,488,499         Total Investments (cost–$604,300,560)–100.0% $ 633,666,466  

20 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO New York Municipal Income Fund III 
Schedule of Investments
September 30, 2007


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value

NEW YORK MUNICIPAL BONDS & NOTES–86.3%

        $ 750   Amherst Industrial Dev. Agcy. Rev., 5.20%, 1/1/40 NR/NR $        696,968     800   Dutchess Cnty. Industrial Dev. Agcy. Rev., 5.25%, 1/1/37 NR/NR   769,880         East Rochester Housing Auth. Rev.,           2,800   St. Mary’s Residence Project, 5.375%, 12/20/22 (GNMA) NR/AAA   2,974,384     1,400   Woodland Project, 5.50%, 8/1/33 NR/NR   1,375,262     1,300   Erie Cnty. Industrial Dev. Agcy., Orchard Park Rev., 6.00%, 11/15/36
Liberty Dev. Corp. Rev., NR/NR   1,277,419     2,990   5.25%, 10/1/35 (h) Aa3/AA−   3,186,413     900   5.50%, 10/1/37 Aa3/AA−   1,002,690     1,060   Goldman Sachs Headquarters, 5.25%, 10/1/35 Aa3/AA−   1,129,631     1,000   Long Island Power Auth., Electric System Rev., 5.00%, 9/1/27, Ser. C A3/A−   1,029,840     6,220   Metropolitan Transportation Auth. Rev.,             5.00%, 11/15/32, Ser. A (FGIC) (h) Aaa/AAA   6,404,485     1,000   Monroe Tobacco Asset Securitization Corp., Tobacco Settlement Rev., 6.375%, 6/1/35, (Pre-refunded @ $101, 6/1/10) (a) Aaa/AAA   1,082,840     2,190   Mortgage Agcy. Rev., 4.75%, 10/1/27, Ser. 128 (h) Aa1/NR   2,159,406     2,000   Nassau Cnty. Tobacco Settlement Corp.,
Rev., 6.60%, 7/15/39, (Pre-refunded @ $101, 7/15/09) (a) Aaa/AAA   2,124,580         New York City, GO, Ser I,           7,195   5.00%, 3/1/33 Aa3/AA   7,320,841     235   5.375%, 3/1/27 Aa3/AA   247,072     1,515   5.375%, 3/1/27, (Pre-refunded @ $100, 3/1/13) (a) Aa3/AAA   1,646,866     800   New York City Industrial Dev. Agcy. Rev.,
Liberty Interactive Corp., 5.00%, 9/1/35 Baa3/BBB−   768,568     5,000   New York City Municipal Water Finance Auth., Water & Sewer System Rev., 5.00%, 6/15/32, Ser. A Aa2/AA+   5,094,250     5,000   New York City Trust for Cultural Res. Rev., Wildlife Conservation
Society, 5.00%, 2/1/34, (FGIC) (h) Aaa/NR   5,166,600     2,995   New York Cntys. Tobacco Settlement Trust Rev., 5.625%, 6/1/35 Ba1/BBB   3,027,106     1,000   Niagara Falls Public Water Auth.,
Water & Sewer System Rev., 5.00%, 7/15/34, Ser. A (MBIA) Aaa/AAA   1,032,860     1,855   Sachem Central School Dist. of Holbrook, GO, 5.00%,
    6/15/30 (MBIA)
State Dormitory Auth. Rev., Aaa/AAA   1,990,619     1,400   Catholic Health of Long Island, 5.10%, 7/1/34 Baa1/BBB   1,358,154     2,250   Jewish Board Family & Children, 5.00%, 7/1/33 (AMBAC) Aaa/AAA   2,318,872     2,000   Kaleida Health Hospital, 5.05%, 2/15/25 (FHA) NR/AAA   2,038,020     3,250   Lenox Hill Hospital, 5.50%, 7/1/30 Ba2/NR   3,275,837         Long Island Univ., Ser. A (Radian),           2,040   5.00%, 9/1/23 Aa3/AA   2,049,608     4,000   5.00%, 9/1/32 Aa3/AA   3,910,640     3,000   Lutheran Medical Hospital, 5.00%, 8/1/31 (FHA-MBIA) Aaa/AAA   3,081,600  

9.30.07 | PIMCO Municipal Income Funds III Annual Report 21





PIMCO New York Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value       Mount St. Mary College (Radian),         $ 2,000   5.00%, 7/1/27 NR/AA $ 1,997,360     2,000   5.00%, 7/1/32 NR/AA   1,971,900     1,000   New York Univ., 5.00%, 7/1/31, Ser. 2 (AMBAC) Aaa/AAA   1,023,210     6,150   North General Hospital, 5.00%, 2/15/25 NR/AA−   6,259,593     1,000   North Shore L.I. Jewish Group,               5.50%, 5/1/33, (Pre-refunded @ $100, 8/15/13) (a) Aaa/NR   1,095,740     7,000   Rockefeller Univ., 5.00%, 7/1/32, Ser. A1 (h) Aaa/AAA   7,210,840     1,000   School Dist. Financing, 5.00%, 10/1/30, Ser. D (MBIA) Aaa/AAA   1,032,520     1,250   Skidmore College, 5.00%, 7/1/28 (FGIC) Aaa/NR   1,299,188     2,500   Sloan-Kettering Center Memorial, 5.00%, 7/1/34, Ser. 1 Aa2/AA   2,566,300     3,740   St. Barnabas Hospital, 5.00%, 2/1/31, Ser. A (AMBAC-FHA) Aaa/AAA   3,831,518     3,600   State Personal Income Tax,               5.00%, 3/15/32, (Pre-refunded @ $100, 3/15/13) (a) Aa3/AAA   3,852,864     1,250   Student Housing Corp.,               5.125%, 7/1/34, (Pre-refunded @ $100, 7/1/14) (FGIC) (a) Aaa/AAA   1,362,400     1,500   Teachers College, 5.00%, 7/1/32 (MBIA) Aaa/NR   1,545,180     2,500   Winthrop-Nassau Univ., 5.75%, 7/1/28 Baa1/NR   2,572,300     620   Winthrop Univ. Hospital Assoc., 5.50%, 7/1/32, Ser. A Baa1/NR   630,311     2,000   Yeshiva Univ., 5.125%, 7/1/34 (AMBAC) Aaa/NR   2,093,200         State Environmental Facs. Corp., Rev. (h),           5,575   4.75%, 7/15/28 Aaa/AAA   5,625,119     8,855   4.75%, 7/15/33 Aaa/AAA   8,898,832     7,375   State Housing Finance Agcy., State Personal Income Tax Rev.,               5.00%, 3/15/33, Ser. A, (Pre-refunded @ $100, 3/15/13) (a)(h) Aa3/AAA   7,893,020     1,900   State Urban Dev. Corp., Personal Income Tax Rev.,
5.00%, 3/15/33, Ser. C-1, (Pre-refunded @ $100, 3/15/13) (a) Aa3/AAA   2,033,456     4,000   Triborough Bridge & Tunnel Auth. Rev.,             5.00%, 11/15/32, (MBIA) (h) Aaa/AAA   4,121,640     2,000   Warren & Washington Cntys. Industrial Dev. Agcy. Fac. Rev.,
Glens Falls Hospital, 5.00%, 12/1/35, Ser. A (FSA) Aaa/AAA   2,040,220     1,250   Westchester Cnty. Industrial Dev. Agcy. Continuing Care Retirement,
Rev., Kendal on Hudson, 6.50%, 1/1/34 NR/NR   1,301,525         Total New York Municipal Bonds & Notes (cost–$137,753,601)     141,799,547  

OTHER MUNICIPAL BONDS & NOTES–9.9%

     

California–2.5%

          3,560   Golden State Tobacco Securitization Corp., Tobacco Settlement Rev.,
6.75%, 6/1/39, Ser. 2003-A-1, (Pre-refunded @ $100, 6/1/13) (a) Aaa/AAA   4,121,590        

District of Columbia–0.1%

          175   Tobacco Settlement Financing Corp. Rev., 6.50%, 5/15/33 Baa3/BBB   187,318  

22 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO New York Municipal Income Fund III 
Schedule of Investments
September 30, 2007 (continued)


Principal
Amount
(000)   Credit Rating
(Moody’s/S&P)* Value      

Indiana–1.8%

              Vigo Cnty. Hospital Auth. Rev. (b),         $ 1,000   5.70%, 9/1/37 NR/NR $ 997,090     2,000   5.75%, 9/1/42 NR/NR   1,993,900               2,990,990        

Puerto Rico–4.8%

              Children’s Trust Fund, Tobacco Settlement Rev.,           1,700   5.50%, 5/15/39 Baa3/BBB   1,703,995     580   5.625%, 5/15/43 Baa3/BBB   583,115     1,000   Electric Power Auth. Power Rev.,
5.125%, 7/1/29, Ser. NN, (Pre-refunded @ $100, 7/1/13) (a) A3/BBB+   1,078,990     4,000   Public Building Auth. Rev., Gov’t Facs., 5.00%, 7/1/36, Ser. I (GTD) Baa3/BBB−   4,020,160     5,000   Puerto Rico Sales Tax Financing Corp., Rev.,
zero coupon, 8/1/54, Ser. A (AMBAC) Aaa/AAA   492,750               7,879,010        

Rhode Island–0.3%

          500   Tobacco Settlement Financing Corp. Rev., 6.125%, 6/1/32, Ser. A Baa3/BBB   504,680        

South Carolina–0.3%

          370   Tobacco Settlement Rev. Management Auth.,               6.375%, 5/15/30, Ser. B Baa3/BBB   388,907        

Washington–0.1%

          135   Tobacco Settlement Auth., Tobacco Settlement Rev.,
6.625%, 6/1/32 Baa3/BBB   139,377         Total Other Municipal Bonds & Notes (cost–$14,324,453)     16,211,872  

NEW YORK VARIABLE RATE NOTES (b)(d)(e)(i)–0.5%

  700   State Urban Dev. Corp. Rev., 8.857%, 3/15/35 (cost–$763,572) NR/AAA   816,375  

NEW YORK VARIABLE RATE DEMAND NOTES (e)(f)–3.0%

  340   Jay Street Dev. Corp. Rev., 3.90%, 10/1/07, Ser. A VMIG1/A-1   340,000     3,100   New York, GO, 3.85%, 10/1/07 VMIG1/A-1+   3,100,000         New York City Transitional Finance Auth. Rev.,           700   3.80%, 10/1/07, Ser. B VMIG1/A-1+   700,000     800   3.95%, 10/1/07, Ser. 3 VMIG1/A-1+   800,000         Total New York Variable Rate Demand Notes (cost–$4,940,000)     4,940,000  

U.S. TREASURY BILLS (g)–0.3%

  550   3.77%-4.62%, 11/29/07-12/13/07 (cost–$545,890)     545,890         Total Investments (cost–$158,327,516)–100.0% $ 164,313,684  

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 23





PIMCO Municipal Income Funds III  
Notes to Schedules of Investments
September 30, 2007

* Unaudited (a) Pre-refunded bonds are collateralized by U.S. Government or other eligible securities which are held in escrow and used to pay principal and interest and retire the bonds at the earliest refunding date (payment date) and/or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). (b) 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. (c) When-issued or delayed-delivery security. To be settled/delivered after September 30, 2007. (d) Inverse Floater – The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. (e) 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 September 30, 2007. (f) Maturity date shown is date of next put. (g) All or partial amount segregated as collateral for futures contracts. (h) 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 Funds acquired the residual interest certificates. These securities serve as collateral in a financing transaction. (i) Private Placement – restricted as to resale and may not have a readily available market. Securities with an aggregate value of $17,913,475, representing 1.97% of total investments in Municipal Income III. Securities with an aggregate value of $10,325,275, representing 1.63% of total investments in California Municipal Income III. Securities with an aggregate value of $816,375, representing 0.50% of total investments in New York Municipal Income III. (j) Security in default.

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 FSA – insured by Financial Security Assurance, Inc. GNMA – insured by Government National Mortgage Association GO – General Obligation Bond MBIA – insured by Municipal Bond Investors Assurance NR – Not Rated PSF-GTD – Public School Fund-Guaranteed Radian – insured by Radian Guaranty, Inc. TCRS – Temporary Custodian Receipts XLCA – insured by XL Capital Assurance

24 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO Municipal Income Funds III 
Statements of Assets and Liabilities
September 30, 2007


  Municipal III  California
Municipal III New York
Municipal III Assets:                   Investments, at value (cost–$874,446,128, $604,300,560
and $158,327,516 respectively) $911,179,841 $633,666,466 $164,313,684 Cash 2,631,685 2,132,818 1,343,665 Interest receivable 12,226,125 7,980,699 1,994,543 Receivable for investments sold 60,000 60,000 Prepaid expenses and other assets 22,639 439,456 11,861 Total Assets 926,120,290 644,219,439 167,723,753 Liabilities:       Payable for floating rate notes 192,389,738 144,258,161 38,919,254 Dividends payable to common and preferred shareholders 2,343,783 1,366,248 318,262 Interest payable 1,290,429 1,174,272 573,106 Payable for investments purchased 1,175,142 — Investment management fees payable 298,062 203,283 52,052 Accrued expenses and other liabilities 709,018 259,651 443,972 Total Liabilities 198,206,172 147,261,615 40,306,646 Preferred shares ($0.00001 par value and $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 $457,914,118 $311,957,824 $80,417,107 Composition of Net Assets Applicable to Common Shareholders:       Common Stock:       Par value ($0.00001 per share) $315 $215 $55 Paid-in-capital in excess of par 447,831,476 305,481,753 78,189,823 Dividends in excess of net investment income (612,794) (1,366,248) (318,262) Accumulated net realized loss (25,961,382) (21,395,567) (3,450,453) Net unrealized appreciation of investments and futures
contracts 36,656,503 29,237,671 5,995,944 Net Assets Applicable to Common Shareholders $457,914,118 $311,957,824 $80,417,107 Common Shares Outstanding 31,522,340 21,541,693 5,517,633 Net Asset Value Per Common Share $14.53 $14.48 $14.57

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 25





PIMCO Municipal Income Funds III 
Statements of Operations
For the year ended September 30, 2007


  Municipal III  California 
Municipal III  New York 
Municipal III  Investment Income:                   Interest $49,661,395 $32,415,991 $8,291,777 Expenses:       Interest expense 7,620,548 5,663,577 1,548,093 Investment management fees 4,794,191 3,270,220 842,194 Auction agent fees and commissions 701,741 473,487 123,606 Custodian and accounting agent fees 459,546 435,288 139,339 Shareholders communications 93,091 67,591 15,959 Audit and tax services 67,175 63,727 48,724 Trustees’ fees and expenses 49,337 39,105 22,453 Transfer agent fees 34,166 28,366 31,124 New York Stock Exchange listing fees 25,334 21,122 21,382 Insurance expense 15,305 10,181 4,298 Legal fees 14,019 13,413 10,210 Miscellaneous 15,005 13,698 14,142 Total expenses 13,889,458 10,099,775 2,821,524 Less: investment management fees waived (1,106,352) (754,667) (194,353)         custody credits earned on cash balances (51,075) (25,895) (26,172) Net expenses 12,732,031 9,319,213 2,600,999 Net Investment Income 36,929,364 23,096,778 5,690,778 Realized and Change In Unrealized Gain (Loss):       Net realized gain (loss) on:       Investments 2,479,759 1,675,681 865,386 Futures contracts 1,468,946 (26,886) 116,145 Options written 218,951 165,849 32,355 Net change in unrealized appreciation/depreciation of:       Investments (19,451,307) (9,493,499) (4,083,503) Futures contracts 2,417,008 1,696,351 417,984 Options written 243,573 212,874 31,202 Net realized and change in unrealized loss on investments,
futures contracts and options written (12,623,070) (5,769,630) (2,620,431) Net Increase in Net Assets Resulting from
Investment Operations
24,306,294 17,327,148 3,070,347 Dividends on Preferred Shares from
Net Investment Income
(9,548,808) (6,244,266) (1,607,055) Net Increase in Net Assets Applicable to Common
Shareholders Resulting from Investment Operations
$14,757,486 $11,082,882 $1,463,292

26 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





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27





PIMCO Municipal Income Funds III  
Statements of Changes in Net Assets
Applicable to Common Shareholders


  Municipal III   Year ended
September 30,
2007 Year ended
September 30,
2006 Investment Operations:             Net investment income $36,929,364 $35,260,941 Net realized gain on investments, futures contracts and options written 4,167,656 6,330,979 Net change in unrealized appreciation/depreciation of investments, futures contracts and options written (16,790,726) 1,391,010 Net increase in net assets resulting from investment operations 24,306,294 42,982,930 Dividends on Preferred Shares from Net Investment Income (9,548,808) (8,494,652) Net increase in net assets applicable to common shareholders
resulting from investment operations 14,757,486 34,488,278 Dividends to Common Shareholders from Net Investment Income (26,397,297) (27,885,144) Capital Share Transactions:     Reinvestment of dividends 3,042,593 2,420,836 Total increase (decrease) in net assets applicable to common shareholders (8,597,218) 9,023,970 Net Assets Applicable to Common Shareholders:     Beginning of year 466,511,336 457,487,366 End of year (including dividends in excess of net investment income
of $(612,794) and $(1,579,902); $(1,366,248) and $(17,465); $(318,262) and $(181,080); respectively) $457,914,118 $466,511,336 Common Shares Issued in Reinvestment of Dividends 202,633 164,906

28 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements






California Municipal III New York Municipal III Year ended
September 30,
2007 Year ended
September 30,
2006 Year ended
September 30,
2007 Year ended
September 30,
2006 $23,096,778 $23,693,004 $5,690,778 $5,883,175 1,814,644 3,900,907 1,013,886 1,238,948 (7,584,274) (1,057,635) (3,634,317) (528,825) 17,327,148 26,536,276 3,070,347 6,593,298 (6,244,266) (5,334,873) (1,607,055) (1,423,170) 11,082,882 21,201,403 1,463,292 5,170,128 (18,727,275) (20,551,567) (4,316,067) (4,819,623) 1,365,933 1,623,866 433,794 442,975 (6,278,460) 2,273,702 (2,418,981) 793,480 318,236,284 315,962,582 82,836,088 82,042,608 $311,957,824 $318,236,284 $80,417,107 $82,836,088 86,683 108,206 28,231 29,518

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 29





PIMCO Municipal Income Fund III 
Statement of Cash Flows
For the year ended September 30, 2007


Cash Flows provided by Operating Activities:       Purchases of long-term investments $(91,404,191) Proceeds from sales of long-term investments 93,169,418 Interest received 38,627,165 Net cash provided by options written 129,774 Operating expenses paid (4,893,527) Net cash provided by futures transactions 3,834,004 Net decrease in short-term investments 369,495 Net cash provided by operating activities 39,832,138 Cash Flows used for Financing Activities:   Cash dividends paid (excluding reinvestment of dividends of $3,042,593) (32,853,345) Repayment of custody overdraft (4,347,108) Net cash used for financing activities* (37,200,453) Net increase in cash 2,631,685 Cash at beginning of year Cash at end of year 2,631,685 Reconciliation of Net Increase in Net Assets Resulting from Investment
    Operations to Net Cash Provided by Operating Activities:
  Net increase in net assets resulting from investment operations 24,306,294 Decrease in receivable for investments sold 3,400,000 Increase in payabe for investments purchased 1,175,142 Decrease in interest receivable 335,720 Decrease in premiums received on options written (89,177) Decrease in prepaid expenses and other assets 2,702 Decrease in investment management fees payable (4,332) Decrease in net payable for variation margin on futures contracts (51,950) Decrease in net unrealized depreciation of options written (243,573) Increase in accrued expenses and other liabilities 219,586 Net decrease in investments 10,781,726 Net cash provided by operating activities $39,832,138
* Supplemental Disclosure Non-cash financing activity not included consists of interest expense on floating rate notes issued of $7,620,548.

30 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO California Municipal Income Fund III 
Statement of Cash Flows
For the year ended September 30, 2007


Cash Flows provided by Operating Activities:       Purchases of long-term investments $(44,831,959) Proceeds from sales of long-term investments 49,746,033 Interest received 27,035,437 Net cash provided by options written 87,911 Operating expenses paid (3,505,772) Net cash provided by futures transactions 1,654,753 Net decrease in short-term investments 669,348 Net cash provided by operating activities 30,855,751 Cash Flows used for Financing Activities:   Cash dividends paid (excluding reinvestment of dividends of $1,365,933) (24,005,534) Repayment of custody overdraft (4,717,399) Net cash used for financing activities* (28,722,933) Net increase in cash 2,132,818 Cash at beginning of year Cash at end of year 2,132,818 Reconciliation of Net Increase in Net Assets Resulting from Investment
    Operations to Net Cash Provided by Operating Activities:
  Net increase in net assets resulting from investment operations 17,327,148 Decrease in interest receivable 382,533 Decrease in premiums received on options written (77,938) Decrease in prepaid expenses and other assets 851 Decrease in investment management fees payable (3,423) Decrease in net payable for variation margin on futures contracts (14,712) Decrease in net unrealized depreciation of options written (212,874) Increase in accrued expenses and other liabilities 152,436 Net decrease in investments 13,301,730 Net cash provided by operating activities $30,855,751
* Supplemental Disclosure Non-cash financing activity not included consists of interest expense on floating rate notes issued of $5,663,577.

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 31





PIMCO New York Municipal Income Fund III 
Statement of Cash Flows
For the year ended September 30, 2007


Cash Flows provided by Operating Activities:       Purchases of long-term investments $(20,098,358) Proceeds from sales of long-term investments 24,261,290 Interest received 6,832,064 Net cash provided by options written 20,932 Operating expenses paid (1,010,333) Net cash provided by futures transactions 528,598 Net increase in short-term investments (32,447) Net cash provided by operating activities 10,501,746 Cash Flows used for Financing Activities:   Cash dividends paid (excluding reinvestment of dividends of $433,794) (5,575,936) Repayment of custody overdraft (3,582,145) Net cash used for financing activities* (9,158,081) Net increase in cash 1,343,665 Cash at beginning of year Cash at end of year 1,343,665 Reconciliation of Net Increase in Net Assets Resulting from Investment
    Operations to Net Cash Provided by Operating Activities:
  Net increase in net assets resulting from investment operations 3,070,347 Increase in receivable for investments sold (60,000) Decrease in interest receivable 148,057 Decrease in premiums received on options written (11,423) Decrease in prepaid expenses and other assets 1,667 Decrease in investment management fees payable (1,234) Decrease in net payable for variation margin on futures contracts (5,531) Decrease in net unrealized depreciation of options written (31,202) Increase in accrued expenses and other liabilities 42,140 Net decrease in investments 7,348,925 Net cash provided by operating activities $10,501,746
* Supplemental Disclosure Non-cash financing activity not included consists of interest expense on floating rate notes issued of $1,548,093.

32 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

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 non-diversified, closed-end management investment companies registered under the Investment Company Act of 1940 and the rules and regulations thereunder, as amended. Allianz Global Investors Fund Management LLC (the ‘‘Investment Manager’’), serves as the investment manager and is an indirect, wholly-owned subsidiary of Allianz Global Investors of America L.P. (‘‘Allianz Global’’). Allianz Global is an indirect majority-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. The Funds have an unlimited amount of $0.00001 par value common stock authorized.

Under normal market conditions, Municipal III invests substantially all of its assets in a portfolio of municipal bonds, the interest from which is exempt from federal income taxes. Under normal market conditions, California Municipal III invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal and California state income taxes. Under normal market conditions, New York Municipal III invests substantially all of its assets in municipal bonds which pay interest that is exempt from federal, New York State and New York City income taxes. 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.

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 this would involve future claims that may be made against the Funds based upon events that have not been asserted. However, the Funds expect the risk of any loss to be remote.

In July 2006, the Financial Accounting Standards Board issued interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109’’ (the ‘‘Interpretation’’). The Interpretation establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Fund management has recently begun to evaluate the application of the Interpretation, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds’ financial statements. On December 22, 2006, the Securities & Exchange Commission announced that it would not object if a fund implements Interpretation 48 in its NAV calculation as late as its last NAV calculation in the first required financial statement reporting period for its fiscal year beginning after December 15, 2006. Consequently, the Funds will be required to comply with the Interpretation by March 31, 2008.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (‘‘SFAS’’) 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, the Funds are in the process of reviewing SFAS 157 against their current valuation policies to determine future applicability.

The following is a summary of significant accounting policies consistently followed by the Funds:

(a) Valuation of Investments

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. 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 guidelines established by the Board of Trustees. The Funds’ investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that

9.30.07 | PIMCO Municipal Income Funds III Annual Report 33





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

1. Organization and Significant Accounting Policies (continued)

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. 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. Exchange traded options and futures are valued at the settlement price determined by the relevant exchange. 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 Funds to value securities may differ from the value that would be realized if the securities were sold and these differences could be material to the financial statements of the Funds. Each 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.

(b) Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Securities purchased and sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on the identified cost basis. Interest income is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized to interest income over the lives of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date.

(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.

(d) 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. The Funds record 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.

(e) 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 or securities 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.

(f) Option Transactions

The Funds may purchase and write (sell) put and call options on securities for hedging purposes, risk management purposes or as part of its investment strategy. 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 securities sold through the exercise of put options is decreased by the premiums paid.

34 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

1. Organization and Significant Accounting Policies (continued)

When an option is written, the premium received is recorded as an asset with an equal liability which is subsequently marked to market to reflect the current market value of the option written. These liabilities are reflected as options written in the Statements of Assets and Liabilities. 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 purchased transactions, as a realized loss. If a call option written by the Funds 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 written by the Funds 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 a written option could result in the Funds purchasing a security at a price different from the current market value.

(g) Inverse Floating Rate Transactions — Residual Interest Municipal Bonds (‘‘RIBs’’) / Residual Interest
Tax Exempt Bonds (‘‘RITEs’’)

The Funds invest in RIBs and RITEs (‘‘Inverse Floaters’’) whose interest rates bear an inverse relationship to the Interest rate on another security or the value of an index. In these transactions, the Funds sell a fixed rate municipal bond (‘‘Fixed Rate Bond’’) to a broker who places the Fixed Rate Bond in a special purpose trust (‘‘Trust’’) from which floating rate bonds (‘‘Floating Rate Notes’’) and Inverse Floaters are issued. The Funds simultaneously or within a short period of time purchase the Inverse Floaters from the broker. The Inverse Floaters held by the Funds provide the Funds with the right to: (1) cause the holders of the Floating Rate Notes to tender their notes at par, and (2) cause the broker to transfer the Fixed-Rate Bond held by the Trust to the Funds, thereby collapsing the Trust. Pursuant to Statement of Financial Accounting Standards No. 140 (‘‘FASB Statement No. 140’’), the Funds account for the transaction described above as a secured borrowing by including the Fixed-Rate Bond in their Schedules of Investments, and account for the Floating Rate Notes as a liability under the caption ‘‘Payable for floating rate notes’’ in the Funds’ Statements of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date.

The Funds may also invest in inverse floaters without transferring a fixed rate municipal bond into a special purpose trust, which are not accounted for as secured borrowings.

The Inverse Floaters are created by dividing the income stream provided by the underlying bonds to create two securities, one short-term and one long-term. The interest rate on the short-term component is reset by an index or auction process typically every 7 to 35 days. After income is paid on the short-term securities at current rates, the residual income from the underlying bond (s) goes to the long-term securities. Therefore, rising short-term rates result in lower income for the long-term component and visa versa. The longer-term bonds may be more volatile and less liquid than other municipal bonds of comparable maturity. Investments in Inverse Floaters typically will involve greater risk than an in investment in Fixed Rate Bonds. The Funds may also invest in Inverse Floaters for the purpose of increasing leverage.

The Funds’ restrictions on borrowings do not apply to the secured borrowings deemed to have occurred for accounting purposes pursuant to FASB Statement No. 140. Inverse Floaters held by the Funds are exempt from registration under Rule 144A of the Securities Act of 1933.

(h) When-Issued/Delayed-Delivery Transactions

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

(i) Custody Credits Earned on Cash Balances

The Funds benefit from an expense offset arrangement with its custodian bank whereby uninvested cash balances earn credits which reduce monthly custodian and accounting agent expenses. Had these cash balances been invested in income producing securities, they would have generated income for the Funds.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 35





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

1. Organization and Significant Accounting Policies (continued)

(j) Interest Expense

Relates to the Funds’ liability in connection with floating rate notes held by third parties in conjunction with Inverse Floater transactions. Interest expense is recorded as incurred.

2. Investment Manager/Sub-Adviser

Each Fund has entered into an Investment Management Agreement (collectively the ‘‘Agreements’’) with the Investment Manager. Subject to the supervision by each Fund’s Board of Trustees, the Investment Manager is responsible for managing, either directly or through others selected by it, the Fund’s investment activities, business affairs and administrative matters. Pursuant to the Agreements, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.65% of each Fund’s average daily net assets, inclusive of net assets attributable to any preferred shares that may be outstanding. In order to reduce each Fund’s 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 is responsible for making 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.

3. Investments in Securities

For the year ended September 30, 2007, purchases and sales of investments, other than short-term securities and U.S. government obligations, were:


  Municipal III California
Municipal III New York
Municipal III Purchases $92,579,333 $44,831,959 $20,098,358 Sales 89,769,418 49,746,033 24,321,290

(a) Futures contracts outstanding at September 30, 2007:


Fund Type Contracts Market
Value
(000) Expiration
Date Unrealized
Depreciation Municipal III: Short: U.S. Treasury Bond Futures (1,823) $(202,980) 12/19/07 $(80,039) California Municipal III: Short: U.S. Treasury Bond Futures (1,053) $(117,245) 12/19/07 $(59,032)              U.S. Treasury Notes 5 yr. Futures (193) (20,657) 12/31/07     (64,836)           $(123,868) New York Municipal III: Short: U.S. Treasury Bond Futures (341) $(37,968) 12/19/07     $(4,586)

36 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

3. Investments in Securities (continued)

(b) Transactions in options written for the year ended September 30, 2007:


  Contracts Premiums Municipal III:             Options outstanding, September 30, 2006   484   $ 89,177   Options written   310     129,774   Options expired   (794   (218,951 )  Options outstanding, September 30, 2007     $   California Municipal III:             Options outstanding, September 30, 2006   423   $ 77,938   Options written   210     87,911   Options expired   (633   (165,849 )  Options outstanding, September 30, 2007     $   New York Municipal III:             Options outstanding, September 30, 2006   62   $ 11,423   Options written   50     20,932   Options expired   (112   (32,355 )  Options outstanding, September 30, 2007     $  

4. Income Tax Information

Municipal III:

The tax character of dividends paid were:


  Year ended
September 30, 2007 Year ended
September 30, 2006 Ordinary Income   $1,486,090   $1,366,808 Tax Exempt Income $34,460,015 $35,012,988

At September 30, 2007, there were no distributable earnings.

At September 30, 2007, Municipal III had a capital loss carryforward of $23,918,271 ($14,905,572 of which will expire in 2013 and $9,012,699 of which will expire in 2014), available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed. During the tax year ended September 30, 2007, Municipal III utilized $4,617,785 of capital loss carryforwards.

For the year ended September 30, 2007, permanent ‘‘book-tax’’ differences were primarily attributable to the differing treatment of inverse floater transactions. These adjustments were to increase dividends in excess of net investment income and decrease accumulated net realized loss by $16,151.

California Municipal III:

The tax character of dividends paid were:


  Year ended
September 30, 2007 Year ended
September 30, 2006 Ordinary Income   $1,020,966    $443,529 Tax Exempt Income $23,950,575 $25,442,911

At September 30, 2007, there were no distributable earnings.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 37





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

4. Income Tax Information (continued)

At September 30, 2007, California Municipal III had a capital loss carryforward of $20,248,019 ($522,414 of which will expire in 2012, $11,508,959 of which will expire in 2013 and $8,216,646 of which will expire in 2014), available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed. During the year ended September 30, 2007, California Municipal III utilized $3,429,993 of capital loss carryforwards.

For the year ended September 30, 2007, permanent ‘‘book-tax’’ differences were primarily attributable to the differing treatment of inverse floater transactions and tax overdistributions. These adjustments were to decrease dividends in excess of net investment income by $525,980, decrease paid-in capital by $493,255 and increase accumulated net realized loss by $32,725.

New York Municipal III:

The tax character of dividends paid were:


  Year ended
September 30, 2007 Year ended
September 30, 2006 Ordinary Income    $154,375      $44,739 Tax Exempt Income $5,768,747 $6,198,054

At September 30, 2007, there were no distributable earnings.

At September 30, 2007, New York Municipal III had a capital loss carryforward of $3,788,871 ($2,183,511 of which will expire in 2013 and $1,605,360 of which will expire in 2014), available as a reduction, to the extent provided in the regulations, of any future net realized capital gains. To the extent that these losses are used to offset future realized capital gains, such gains will not be distributed. During the year ended September 30, 2007, New York Municipal III utilized $1,356,980 of capital loss carryforwards.

For the year ended September 30, 2007, permanent ‘‘book-tax’’ differences were primarily attributable to the differing treatment of inverse floater transactions and tax overdistributions. These adjustments were to decrease dividends in excess of net investment income by $95,162, decrease paid-in capital by $112,156 and decrease accumulated net realized loss by $16,994.

The cost of investments for federal income tax purposes and gross unrealized appreciation and gross unrealized depreciation of investments at September 30, 2007 were:


  Cost of
Investments Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net
Unrealized
Appreciation Municipal III $683,835,415 $42,171,976 $(7,558,584) $34,613,392 California Municipal III 461,730,442 31,089,264 (2,999,141) 28,090,123 New York Municipal III 118,713,298 6,718,720 (384,359) 6,334,361

The difference between book and tax appreciation is primarily attributable to inverse floater transactions.

5. Auction Preferred Shares

Municipal III has issued 2,160 shares of Preferred Shares Series A, 2,160 shares of Preferred Shares Series B, 2,160 shares of Preferred Shares Series C, 2,160 shares of Preferred Shares Series D and 2,160 shares of Preferred Shares Series E, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.

California Municipal III has issued 3,700 shares of Preferred Shares Series A and 3,700 shares of Preferred Shares Series B, each with a net asset and liquidation value of $25,000 per share plus accrued dividends.

New York Municipal III has issued 1,880 shares of Preferred Shares Series A with a net asset and liquidation value of $25,000 per share plus accrued dividends.

Dividends are accumulated daily at an annual rate (typically re-set every seven days) through auction procedures. Distributions of net realized capital gains, if any, are paid annually.

38 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

5. Auction Preferred Shares (continued)

For the year ended September 30, 2007, the annualized dividend rates ranged from:


  High Low At September 30, 2007 Municipal III:       Series A 5.32% 3.10% 3.75% Series B 3.95% 3.10% 3.65% Series C 4.25% 3.00% 3.70% Series D 4.00% 3.25% 3.65% Series E 5.32% 3.15% 3.75% California Municipal III:       Series A 5.32% 2.98% 3.60% Series B 3.75% 2.95% 3.70% New York Municipal III:       Series A 5.32% 3.00% 3.70%

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.

6. Subsequent Common Dividend Declarations

On October 1, 2007, the following dividends were declared to common shareholders payable November 1, 2007 to shareholders of record on October 11, 2007:


Municipal III $0.070 per common share California Municipal III $0.060 per common share New York Municipal III $0.0525 per common share

On November 1, 2007 the following dividends were declared to common shareholders payable December 3, 2007 to shareholders of record on November 12, 2007:


Municipal III $0.070 per common share California Municipal III $0.060 per common share New York Municipal III $0.0525 per common share

7. Legal Proceedings

In June and September 2004, the Investment Manager and certain of its affiliates (including PEA Capital LLC (‘‘PEA’’), Allianz Global Investors Distributors LLC (‘‘AGID’’) and Allianz Global Investors of America, L.P. agreed to settle, without admitting or denying the allegations, claims brought by the SEC and the New Jersey Attorney General alleging violations of federal and state securities laws with respect to certain open-end funds for which the Investment Manager serves as investment adviser. The settlements related to an alleged ‘‘market timing’’ arrangement in certain open-end funds formerly sub-advised by PEA. The Investment Manager and its affiliates agreed to pay a total of $68 million to settle the claims. In addition to monetary payments, the settling parties agreed to undertake certain corporate governance, compliance and disclosure reforms related to market timing, and consented to cease and desist orders and censures. Subsequent to these events, PEA deregistered and dissolved. None of the settlements allege that any inappropriate activity took place with respect to the Funds.

Since February 2004, the Investment Manager and certain of its affiliates and their employees have been named as defendants in a number of pending lawsuits concerning ‘‘market timing,’’ which allege the same or similar conduct underlying the regulatory settlements discussed above. The market timing lawsuits have been consolidated in a multi-district litigation proceeding in the U.S. District Court for the District of Maryland. Any potential resolution of these matters may include, but not be limited to judgments or settlements for damages against the Investment Manager or its affiliates or related injunctions.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 39





PIMCO Municipal Income Funds III 
Notes to Financial Statements
September 30, 2007

7. Legal Proceedings (continued)

The Investment Manager and the Sub-Adviser believe that these matters are not likely to have a material adverse effect on the Funds or on their ability to perform their respective investment advisory activities relating to the Funds.

The foregoing speaks only as of the date hereof.

40 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Fund III 
Financial Highlights
For a share of common stock outstanding throughout each period:


  Year Ended September 30, For the period
October 31, 2002*
through   2007 2006 2005 2004 September 30, 2003  Net asset value, beginning of period   $14.90     $14.68     $14.36     $14.05     $14.33 **  Investment Operations:                               Net investment income   1.17     1.12     1.14     1.18     0.78   Net realized and change in unrealized gain (loss) on investments, futures contracts and options written   (0.40   0.26     0.36     0.22     (0.08 )  Total from investment operations   0.77     1.38     1.50     1.40     0.70   Dividends on Preferred Shares from Net Investment Income   (0.30   (0.27   (0.18   (0.09   (0.06 )  Net increase in net assets applicable to common shareholders resulting from investment operations   0.47     1.11     1.32     1.31     0.64   Dividends to Common Shareholders from Net Investment Income:   (0.84   (0.89   (1.00   (1.00   (0.79Capital Share Transactions:                               Common stock offering costs charged to paid-in capital in excess of par                   (0.03 )  Preferred shares offering costs/underwriting discounts charged to paid-in capital in excess of par                   (0.10 )  Total capital share transactions                   (0.13 )  Net asset value, end of period   $14.53     $14.90     $14.68     $14.36     $14.05   Market price, end of period   $15.05     $15.70     $15.49     $14.30     $14.20   Total Investment Return (1)   1.38   7.69   15.95   8.10   0.05RATIOS/SUPPLEMENTAL DATA:                               Net assets applicable to common shareholders, end of period (000)   $457,914     $466,511     $457,487     $445,679     $435,169   Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)   2.73   2.71   1.97   1.54   1.10 %#  Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)   1.10   1.06   1.03   1.05   0.99 %#  Ratio of net investment income to average net assets (2)(5)   7.90   7.71   7.74   8.25   6.05 %#  Preferred shares asset coverage per share   $67,378     $68,179     $67,352     $66,261     $65,284   Portfolio turnover   10 %     15   3   13 %     18
* Commencement of operations. ** Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. # Annualized. (1) Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day of each period and a sale of a share of common stock at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. 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(i) in Notes to Financial Statements). (4) Interest expense relates to the liability for floating rate notes issued in connection with inverse floater transactions. (5) During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders was 0.24%, 0.24%, 0.24%, 0.24% and 0.23% (annualized) for the years ended September 30, 2007, September 30, 2006, September 30, 2005, September 30, 2004 and for the period October 31, 2002 (commencement of operations) through September 30, 2003.

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 41





PIMCO California Municipal Income Fund III 
Financial Highlights
For a share of common stock outstanding throughout each period:


  Year Ended September 30, For the period
October 31, 2002*
through   2007 2006 2005 2004 September 30, 2003  Net asset value, beginning of period   $14.83     $14.80     $14.12     $13.43     $14.33 **  Investment Operations:                               Net investment income   1.07     1.11     1.14     1.23     0.67   Net realized and change in unrealized gain (loss) on investments, futures contracts and options written   (0.26   0.13     0.65     0.51     (0.62 )  Total from investment operations   0.81     1.24     1.79     1.74     0.05   Dividends on Preferred Shares from Net Investment Income   (0.29   (0.25   (0.15   (0.09   (0.06 )  Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations   0.52     0.99     1.64     1.65     (0.01Dividends to Common Shareholders from Net Investment Income:   (0.87   (0.96   (0.96   (0.96   (0.76Capital Share Transactions:                               Common stock offering costs charged to paid-in capital in excess of par                   (0.03 )  Preferred shares offering costs/underwriting discounts charged to paid-in capital in excess of par                   (0.10 )  Total capital share transactions                   (0.13 )  Net asset value, end of period   $14.48     $14.83     $14.80     $14.12     $13.43   Market price, end of period   $14.20     $16.94     $15.11     $13.74     $13.62   Total Investment Return (1)   (11.38 )%    19.43   17.48   8.22   (4.10 )%  RATIOS/SUPPLEMENTAL DATA:                               Net assets applicable to common shareholders, end of period (000)   $311,958     $318,236     $315,963     $300,860     $285,279   Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)   2.94   2.69   1.94   1.55   1.14 %#  Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)   1.16   1.06   1.05   1.08   1.01 %#  Ratio of net investment income to average net assets (2)(5)   7.26   7.56   7.82   8.79   5.30 %#  Preferred shares asset coverage per share   $67,140     $67,993     $67,692     $65,650     $63,539   Portfolio turnover   7   7   5   33   58
* Commencement of operations. ** Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. # Annualized. (1) Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day of each period and a sale of a share of common stock at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. 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(i) in Notes to Financial Statements). (4) Interest expense relates to the liability for floating rate notes issued in connection with inverse floater transactions. (5) During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders was 0.24%, 0.24%, 0.24%, 0.24% and 0.23% (annualized) for the years ended September 30, 2007, September 30, 2006, September 30, 2005, September 30, 2004 and for the period October 31, 2002 (commencement of operations) through September 30, 2003.

42 PIMCO Municipal Income Funds III Annual Report | 9.30.07 | See accompanying Notes to Financial Statements





PIMCO New York Municipal Income Fund III 
Financial Highlights
For a share of common stock outstanding throughout each period:


  Year Ended September 30, For the period
October 31, 2002*
through   2007 2006 2005 2004 September 30, 2003  Net asset value, beginning of period   $15.09     $15.03     $14.41     $14.14     $14.33 **  Investment Operations:                               Net investment income   1.03     1.07     1.13     1.19     0.64   Net realized and change in unrealized gain (loss) on investments, futures contracts and options written   (0.48   0.13     0.61     0.12     0.14   Total from investment operations   0.55     1.20     1.74     1.31     0.78   Dividends on Preferred Shares from Net Investment Income   (0.29   (0.26   (0.16   (0.08   (0.06 )  Net increase in net assets applicable to common shareholders resulting from investment operations   0.26     0.94     1.58     1.23     0.72   Dividends to Common Shareholders from Net Investment Income:   (0.78   (0.88   (0.96   (0.96   (0.76Capital Share Transactions:                               Common stock offering costs charged to paid-in capital in excess of par                   (0.03 )  Preferred shares offering costs/underwriting discounts charged to paid-in capital in excess of par                   (0.12 )  Total capital share transactions                   (0.15 )  Net asset value, end of period   $14.57     $15.09     $15.03     $14.41     $14.14   Market price, end of period   $13.57     $16.45     $16.04     $14.30     $13.68   Total Investment Return (1)   (13.12 )%    8.73   19.65   11.93   (3.77 )%  RATIOS/SUPPLEMENTAL DATA:                               Net assets applicable to common shareholders, end of period (000)   $80,417     $82,836     $82,043     $78,465     $76,975   Ratio of expenses to average net assets, including interest expense (2)(3)(4)(5)   3.18   2.89   2.36   1.73   1.26 %#  Ratio of expenses to average net assets, excluding interest expense (2)(3)(5)   1.31   1.16   1.24   1.19   1.14 %#  Ratio of net investment income to average net assets (2)(5)   6.89   7.23   7.54   8.23   4.99 %#  Preferred shares asset coverage per share   $67,749     $69,042     $68,627     $66,732     $65,942   Portfolio turnover   12   8   4   12   111
* Commencement of operations. ** Initial public offering price of $15.00 per share less underwriting discount of $0.675 per share. # Annualized. (1) Total investment return is calculated assuming a purchase of a share of common stock at the current market price on the first day of each period and a sale of a share of common stock at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges. 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(i) in Notes to Financial Statements). (4) Interest expense relates to the liability for floating rate notes issued in connection with inverse floater transactions. (5) During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waivers relative to the average net assets of common shareholders was 0.24%, 0.24%, 0.24%, 0.24% and 0.23% (annualized) for the years ended September 30, 2007, September 30, 2006, September 30, 2005, September 30, 2004 and for the period October 31, 2002 (commencement of operations) through September 30, 2003.

See accompanying Notes to Financial Statements | 9.30.07 | PIMCO Municipal Income Funds III Annual Report 43





PIMCO Municipal Income Funds III 
Report of Independent Registered
Public Accounting Firm

To the Shareholders and the Board of Trustees of:
PIMCO Municipal Income Fund III,
PIMCO California Municipal Income Fund III and
PIMCO New York Municipal Income Fund III

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets applicable to common shareholders and the financial highlights present fairly, in all material respects, the financial position of PIMCO Municipal Income Fund III, PIMCO California Municipal Income Fund III and PIMCO New York Municipal Income Fund III (collectively hereafter referred to as the ‘‘Funds’’) at September 30, 2007, the results of each of their operations for the year ended, the changes in each of their net assets applicable to common shareholders for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended and for the period October 31, 2002 (commencement of operations) through September 30, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as ‘‘financial statements’’) are the responsibility of the Funds’ management; our responsibility is to express and opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, New York
November 21, 2007

44 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Tax Information/Annual Shareholder Meetings Results (unaudited)

Tax Information:

Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Funds to advise shareholders within 60 days of the Funds’ tax year-end (September 30, 2007) as to the federal tax status of dividends and distributions received by shareholders during such tax period. Accordingly, please note that substantially all dividends paid from net investment income from the Funds during the tax period ended September 30, 2007 were federally exempt interest dividends. However, the Funds invested in municipal bonds containing market discount, whose accretion is taxable. Accordingly, the percentage of dividends paid from net investment income during the tax period which are taxable were:


Municipal Income III   4.13 %  California Municipal Income III   4.09 %  New York Municipal Income III   2.61

Since the Funds’ tax year is not the calendar year, another notification will be sent with respect to calendar year 2007. In January 2008, shareholders will be advised on IRS Form 1099 DIV as to the federal tax status of the dividends and distributions received during calendar 2007. The amount that will be reported will be the amount to use on your 2007 federal income tax return and may differ from the amount which must be reported in connection with each Fund’s tax year ended September 30, 2007. Shareholders are advised to consult their tax advisers as to the federal, state and local tax status of the dividend income received from the Funds. In January 2008, an allocation of interest income by state will be provided which may be of value in reducing a shareholder’s state and local tax liability, if any.

In November 2007, the Supreme Court heard oral arguments in a case that might significantly affect state taxation of municipal bonds. In the decision on appeal, a Kentucky state court held that a Kentucky law violates the U.S. Constitution by exempting from state taxation the interest income from Kentucky municipal bonds while taxing that from out-of-state municipal bonds. If the Supreme Court affirms this holding, most states likely will revisit the way in which they treat the interest on municipal bonds, and this has the potential to increase significantly the amount of state tax paid by shareholders on exempt-interest dividends. The Supreme Court is expected to issue a decision in this case later in the 2007-2008 term. You should consult your tax advisor to discuss the tax consequences of your investment in the Funds.

Annual Shareholder Meetings Results:

The Funds held their annual meetings of shareholders on December 20, 2006. Common/Preferred shareholders of each fund voted to re-elect Robert E. Connor* and Hans W. Kertess and elect William B. Ogden IV as Class I Trustees as indicated below:


  Affirmative Withheld
Authority Municipal III:             Re-Election of Hans W. Kertess   27,421,378     330,163   Election of William B. Ogden IV   27,421,656     329,885   Re-Election of Robert E. Connor   9,170     32   California Municipal III:             Re-Election of Hans W. Kertess   18,004,040     155,851   Election of William B. Ogden IV   18,004,649     155,242   Re-Election of Robert E. Connor   6,050     11   New York Municipal III:             Re-Election of Hans W. Kertess   4,683,009     45,718   Election of William B. Ogden IV   4,689,898     38,829   Re-Election of Robert E. Connor   1,732     2   Messrs. Paul Belica, Jack J. Dalessandro*, John C. Maney and R. Peter Sullivan III continue to serve as Trustees of the Funds.
*    Preferred Shares Trustee

9.30.07 | PIMCO Municipal Income Funds III Annual Report 45





PIMCO Municipal Income Funds III 
Matters Relating to the Trustees’ Consideration of the Investment Management and Portfolio Management Agreements (unaudited)

    

The Investment Company Act of 1940 requires that both the full Board of Trustees (the ‘‘Trustees’’) and a majority of the non-interested (‘‘Independent’’) Trustees, voting separately, approve the Funds’ Management Agreements (the ‘‘Advisory Agreements’’) with the Investment Manager and Portfolio Management Agreements (the ‘‘Sub-Advisory Agreements’’, and together with the Advisory Agreements, the ‘‘Agreements’’) between the Investment Manager and the Sub-Adviser. The Trustees met on June 13, 2007 (the ‘‘contract review meeting’’) for the specific purpose of considering whether to approve the Advisory Agreements and the Sub-Advisory Agreements. The Independent Trustees were assisted in their evaluation of the Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Fund management during the contract review meeting.

Based on their evaluation of factors that they deemed to be material, including those factors described below, the Board of Trustees, including a majority of the Independent Trustees, concluded that the Funds’ Advisory Agreements and the Sub-Advisory Agreements should be approved for a one-year period commencing July 1, 2007.

In connection with their deliberations regarding the continuation of the Agreements, the Trustees, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. As described below, the Trustees considered the nature, quality, and extent of the various investment management, administrative and other services performed by the Investment Manager and the Sub-Adviser under the Agreements.

In connection with their contract review meeting, the Trustees received and relied upon materials provided by the Investment Manager which included, among other items: (i) information provided by Lipper Analytical Services Inc. (‘‘Lipper Inc.’’) on the total return investment performance (based on net assets) of the Funds for various time periods and the investment performance of a group of funds with substantially similar investment classifications/objectives identified by Lipper Inc., (ii) information provided by Lipper Inc. on the Funds’ management fees and other expenses and the management fees and other expenses of comparable funds identified by Lipper Inc., (iii) information regarding the investment performance and management fees of comparable portfolios of other clients of the Sub-Adviser, including institutional separate accounts and other clients, (iv) the profitability to the Investment Manager from its relationship with the Funds for the twelve months ended March 31, 2007, (v) descriptions of various functions performed by the Investment Manager and the Sub-Adviser for the Funds, such as portfolio management, compliance monitoring and portfolio trading practices, and (vi) information regarding the overall organization of the Investment Manager and the Sub-Adviser, including information regarding senior management, portfolio managers and other personnel providing investment management, administrative and other services to the Funds.

The Trustees’ conclusions as to the continuation of the Agreements were based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors.

As part of their review, the Trustees examined the Investment Manager’s and the Sub-Adviser’s ability to provide high quality investment management and other services to the Funds. The Trustees considered the investment philosophy and research and decision-making processes of the Sub-Adviser; the experience of key advisory personnel of the Sub-Adviser responsible for portfolio management of the Funds; the ability of the Investment Manager and the Sub-Adviser to attract and retain capable personnel; the capability and integrity of the senior management and staff of the Investment Manager and the Sub-Adviser; and the level of skill required to manage the Funds. In addition, the Trustees reviewed the quality of the Investment Manager’s and the Sub-Adviser’s services with respect to regulatory compliance and compliance with the investment policies of the Funds; the nature and quality of certain administrative services the Investment Manager is responsible for providing to the Funds; and conditions that might affect the Investment Manager’s or the Sub-Adviser’s ability to provide high quality services to the Funds in the future under the Agreements, including each organization’s respective business reputation, financial condition and operational stability. Based on the foregoing, the Trustees concluded that the Sub-Adviser’s investment process, research capabilities and philosophy were well suited to the Funds given their investment objectives and policies, and that the Investment Manager and the Sub-Adviser would be able to continue to meet any reasonably foreseeable obligations under the Agreements.

46 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Matters Relating to the Trustees’ Consideration of the Investment Management and Portfolio Management Agreements (unaudited)

    

Based on information provided by Lipper Inc., the Trustees also reviewed each Fund’s total return investment performance as well as the performance of comparable funds identified by Lipper Inc. In the course of their deliberations, the Trustees took into account information provided by the Investment Manager in connection with the contract review meeting, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding each Fund’s performance.

In assessing the reasonableness of each Fund’s fees under the Agreements, the Trustees considered, among other information, each Fund’s management fee and the total expense ratio as a percentage of average net assets attributable to common shares and the management fee and total expense ratios of comparable funds identified by Lipper Inc.

For each of the Funds, the Trustees specifically took note of how each Fund compared to its Lipper Inc. peers as to performance and total expense ratio. The Trustees noted that while the Funds are not charged a separate administration fee, it was not clear whether the peer funds in the Lipper Inc. categories were charged such a fee by their investment managers. Thus, the Trustees, at the recommendation of the Investment Manager, considered the total expenses of the Funds compared to the total expenses of the peer funds, recognizing that the fees for management and administrative services would be subsumed within the total expense ratio.

Municipal III:

The Trustees noted that Municipal III had outperformed its peer group’s median and low returns but had underperformed its peer group’s high returns for the one-year and three-year periods ended March 31, 2007. The Trustees also noted that Municipal III’s expense ratio (after taking into account waivers) was below the median and the high for its peer group but above the low for its peer group.

California Municipal III:

The Trustees noted that California Municipal III had outperformed its peer group’s median and low returns but had slightly underperformed its peer group’s high returns for the one-year and three-year periods ended March 31, 2007. The Trustees noted that in the one-year period, California Municipal III’s total return was ranked second among twenty two funds in its Lipper category for its asset class. The Trustees also noted that California Municipal III’s expense ratio (after taking into account waivers) was significantly below the high for its peer group, was in line with its peer median group and was above the low for its peer group.

New York Municipal III:

The Trustees noted that New York Municipal III had significantly outperformed its peer group’s median and low returns and was in line with its peer group’s high returns for the one-year and three-year periods ended March 31, 2007. The Trustees noted that in the one-year and three-year periods, New York Municipal III’s total return was ranked first among sixteen funds in its Lipper category for its asset class. The Trustees also noted that New York Municipal III’s expense ratio (after taking into account waivers) was significantly below the high for its peer group but was above the low and the median for its peer group.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the Agreements, that they were satisfied with the Investment Manager’s and the Sub-Adviser’s responses and efforts relating to investment performance and the comparative positioning of each Fund with respect to the management fee paid to the Investment Manager.

The Trustees also considered the management fees charged by the Sub-Adviser to other clients, including institutional separate accounts with investment strategies similar to those of the Funds. Regarding the institutional separate accounts, they noted that the management fees paid by the Funds are generally higher than the fees paid by these other clients of the Sub-Adviser, but were advised that the administrative burden for the Investment Manager and the Sub-Adviser with respect to the Funds is also relatively higher, due in part to the more extensive regulatory regime to which the Funds are subject in comparison to institutional separate accounts. The Trustees noted that the management fees paid by the Funds are generally higher than the fees paid by the open-end funds but were advised that there are additional portfolio management challenges in managing the Funds, such as the use of leverage and meeting a regular dividend.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 47





PIMCO Municipal Income Funds III 
Matters Relating to the Trustees’ Consideration of the Investment Management and Portfolio Management Agreements (unaudited)

    

The Trustees also took into account that the Funds have preferred shares outstanding, which increases the amount of fees received by the Investment Manager and the Sub-Adviser under the Agreements (because the fees are calculated based on either the Fund’s new assets or total managed assets, including assets attributable to preferred shares and other forms of leverage outstanding but not deducting any liabilities connected to the leverage). In this regard, the Trustees took into account that the Investment Manager and the Sub-Adviser have a financial incentive for the Funds to continue to have preferred shares outstanding, which may create a conflict of interest between the Investment Manager and the Sub-Adviser, on the one hand, and the Fund’s common shareholders, on the other. In this regard, the Trustees considered information provided by the Investment Manager and the Sub-Adviser indicating that each Fund’s use of leverage through preferred shares continues to be appropriate and in the interests of the Fund’s common shareholders.

Based on a profitability analysis provided by the Investment Manager, the Trustees also considered the profitability of the Investment Manager from its relationship with each Fund and determined that such profitability was not excessive.

The Trustees also took into account that, as closed-end investment companies, the Funds do not currently intend to raise additional assets, so the assets of the Funds will grow (if at all) only through the investment performance of each Fund. Therefore, the Trustees did not consider potential economies of scale as a principal factor in assessing the fee rates payable under the Agreements.

Additionally, the Trustees considered so-called ‘‘fall-out benefits’’ to the Investment Manager and the Sub-Adviser, such as reputational value derived from serving as Investment Manager and Sub-Adviser to the Funds.

After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the Agreements, that the fees payable under the Agreements represent reasonable compensation in light of the nature and quality of the services being provided by the Investment Manager and Sub-Adviser to the Funds.

48 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Privacy Policy/Proxy Voting Policies &
Procedures (unaudited)

Privacy Policy:

Our Commitment to You

We consider customer privacy to be a fundamental aspect of our relationship with clients. We are committed to maintaining the confidentiality, integrity, and security of our current, prospective and former clients’ personal information. To ensure clients privacy, we have developed policies designed to protect this confidentiality, while allowing client needs to be served.

Obtaining Personal Information

In the course of providing you with products and services, we and certain service providers to the Funds, such as the Funds’ investment adviser, may obtain non-public personal information about you. This information may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser or consultant, and/or from information captured on our internet web sites.

Respecting Your Privacy

As a matter of policy, we do not disclose any personal or account information provided by you or gathered by us to non-affiliated third parties, except as required or permitted by law or as necessary for such third parties to perform their agreements with respect to the Funds. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, conducting research on client satisfaction, and gathering shareholder proxies. We may also retain non-affiliated companies to market our products and enter in joint marketing agreements with other companies. These companies may have access to your personal and account information, but are permitted to use the information solely to provide the specific service or as otherwise permitted by law. In most cases you will be clients of a third party, but we may also provide your personal and account information to your respective brokerage or financial advisory firm and/or to your financial adviser or consultant.

Sharing Information with Third Parties

We do reserve the right to disclose or report personal information to non-affiliated third parties in limited circumstances where we believe in good faith that disclosure is required under law, to cooperate with regulators or law enforcement authorities, to protect our rights or property, or upon reasonable request by any mutual fund in which you have chosen to invest. In addition, we may disclose information about a shareholder’s accounts to a non-affiliated third party with the consent of the shareholder.

Sharing Information with Affiliates

We may share client information with our affiliates in connection with servicing your account or to provide you with information about products and services that we or our affiliates believe may be of interest to you. The information we share may include, for example, your participation in our mutual funds or other investment programs sponsored by us or our affiliates, your ownership of certain types of accounts (such as IRAs), or other data about your accounts. Our affiliates, in turn, are not permitted to share your information with non-affiliated entities, except as required or permitted by law.

Procedures to Safeguard Private Information

We take seriously the obligation to safeguard shareholder non-public personal information. In addition to this policy, we have also implemented procedures that are designed to restrict access to your non-public personal information only to internal personnel who need to know that information in order to provide products or services to you. In order to guard your non-public personal information, physical, electronic and procedural safeguards are in place.

Proxy Voting Policies & Procedures:

A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the twelve months ended June 30, 2007 is available (i) without charge, upon request, by calling the Funds’ shareholder servicing agent at (800) 331-1710; (ii) on the Funds’ website at www.allianzinvestors.com/closedendfunds; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 49





PIMCO Municipal Income Funds III 
Dividend Reinvestment Plan (unaudited)

Pursuant to the Funds’ Dividend Reinvestment Plan (the ‘‘Plan’’), all Common Shareholders whose shares are registered in their own names will have all dividends, including any capital gain dividends, reinvested automatically in additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the ‘‘Plan Agent’’), unless the shareholder elects to receive cash. An election to receive cash may be revoked or reinstated at the option of the shareholder. In the case of record shareholders such as banks, brokers or other nominees that hold Common Shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder as representing the total amount registered in such shareholder’s name and held for the account of beneficial owners who are to participate in the Plan. Shareholders whose shares are held in the name of a bank, broker or nominee should contact the bank, broker or nominee for details. All distributions to investors who elect not to participate in the Plan (or whose broker or nominee elects not to participate on the investor’s behalf), will be paid cash by check mailed, in the case of direct shareholder, to the record holder by PFPC Inc., as the Funds’ dividend disbursement agent.

Unless you elect (or your broker or nominee elects) not to participate in the Plan, the number of Common Shares you will receive will be determined as follows:

(1)  If on the payment date the net asset value of the Common Shares is equal to or less than the market price per Common Share plus estimated brokerage commissions that would be incurred upon the purchase of Common Shares on the open market, the Fund will issue new shares at the greater of (i) the net asset value per Common Share on the payment date or (ii) 95% of the market price per Common Share on the payment date; or (2)  If on the payment date the net asset value of the Common Shares is greater than the market price per Common Share plus estimated brokerage commissions that would be incurred upon the purchase of Common Shares on the open market, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the New York Stock Exchange or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price on the payment date, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market on or shortly after the payment date, but in no event later than the ex-dividend date for the next distribution. Interest will not be paid on any uninvested cash payments.

You may withdraw from the Plan at any time by giving notice to the Plan Agent. If you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.

The Plan Agent maintains all shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. The Plan Agent will also furnish each person who buys Common Shares with written instructions detailing the procedures for electing not to participate in the Plan and to instead receive distributions in cash. Common Shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all Common Shares you have received under the Plan.

There is no brokerage charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.

Automatically reinvested dividends and distributions are taxed in the same manner as cash dividends and distributions.

The Funds and the Plan Agent reserve the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Funds reserve the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained from the Funds’ shareholder servicing agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027, telephone number (800) 331-1710.

50 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Board of Trustees (unaudited)


Name, Date of Birth, Position(s) Held with
Funds, Length of Service, Other Trusteeships/ Directorships Held by Trustee; Number of
Portfolios in Fund Complex/Outside Fund
Complexes Currently Overseen by Trustee Principal Occupation(s) During Past 5 Years: The address of each trustee is
1345 Avenue of the Americas,
New York, NY 10105   Hans W. Kertess
Date of Birth: 7/12/39
Chairman of the Board of Trustees since: 2007
Trustee since: 2003
Term of office: Expected to stand for
    re-election at 2009 annual meeting of
    shareholders.
Trustee/Director of 28 Funds in Fund Complex;
Trustee/Director of no funds outside of Fund
    Complex President, H. Kertess & Co., a financial advisory company; Formerly, Managing Director, Royal Bank of Canada Capital Markets. Paul Belica
Date of Birth: 9/27/21
Trustee since: 2002
Term of office: Expected to stand for
    re-election at 2008 annual meeting of
    shareholders.
Trustee/Director of 28 funds in Fund Complex
Trustee/Director of no funds outside of Fund
    Complex Retired. Formerly Director, Student Loan Finance Corp., Education Loans, Inc., Goal Funding, Inc., Goal Funding II, Inc. and Surety Loan Fund, Inc.; formerly, Manager of Stratigos Fund LLC, Whistler Fund LLC, Xanthus Fund LLC & Wynstone Fund LLC. Robert E. Connor
Date of Birth: 9/17/34
Trustee since: 2002
Term of office: Expected to stand for
    re-election at 2009 annual meeting of
    shareholders.
Trustee/Director of 28 funds in Fund Complex
Trustee/Director of no funds outside of Fund
    Complex Corporate Affairs Consultant. Formerly, Senior Vice President, Corporate Office, Smith Barney Inc. John J. Dalessandro II
Date of Birth: 7/26/37
Trustee since: 2002
Term of office: Expected to stand for
    re-election at 2007 annual meeting of
    shareholders.
Trustee/Director of 28 funds in Fund Complex
Trustee/Director of no funds outside of Fund
    Complex Retired. Formerly, President and Director, J.J. Dalessandro II Ltd., registered broker-dealer and member of the New York Stock Exchange. William B. Ogden, IV
Date of Birth: 1/11/45
Trustee since: 2006
Term of office: Expected to stand for election
    at 2009 annual meeting of shareholders.
Trustee/Director of 27 Funds in Fund Complex;
Trustee/Director of no funds outside of Fund
    Complex Asset Management Industry Consultant; Formerly, Managing Director, Investment Banking Division of Citigroup Global Markets Inc. R. Peter Sullivan III
Date of Birth: 9/4/41
Trustee since: 2004
Term of office: Expected to stand for
    re-election at 2007 annual meeting of
    shareholders.
Trustee/Director of 27 funds in Fund Complex
Trustee/Director of no funds outside of Fund
    Complex Retired. Formerly, Managing Partner, Bear Wagner Specialists LLC, specialist firm on the New York Stock Exchange.

9.30.07 | PIMCO Municipal Income Funds III Annual Report 51





PIMCO Municipal Income Funds III 
Board of Trustees (unaudited)


Name, Date of Birth, Position(s) Held with
Funds, Length of Service, Other Trusteeships/ Directorships Held by Trustee; Number of
Portfolios in Fund Complex/Outside Fund
Complexes Currently Overseen by Trustee Principal Occupation(s) During Past 5 Years: John C. Maney†
Date of Birth: 8/3/59
Trustee since 2006
Term of office: Expected to stand for
    re-election at 2007 annual meeting of
    shareholders.
Trustee/Director of 64 Funds in Fund
    Complex
Trustee/Director of No Funds outside the     Fund Complex Management Board and Chief Financial Officer of Allianz Global Investors Fund Management LLC; Chief Financial Officer of Allianz Global Investors Managed Accounts LLC and Allianz Global Investors Distributors LLC; Management Board and Managing Director of Allianz Global Investors of America L.P. since January 2005 and also Chief Operating Officer of Allianz Global Investors of America L.P. since November 2006; Chief Financial Officer of PIMCO, Oppenheimer Capital LLC, NFJ Investment Group and a number of other affiliated entities; Formerly, Executive Vice President and Chief Financial Officer of Apria Healthcare Group, Inc. (1998-2001)
† Mr. Maney is an ‘‘interested person’’ of the Fund due to his affiliation with Allianz Global Investors of America L.P. In addition to Mr. Maney’s positions set forth in the table above, he holds the following positions with affiliated persons: Management Board, Managing Director and Chief Operating Officer of Allianz Global Investors of America L.P.; Member — Board of Directors, Chief Operating Officer and Chief Financial Officer of Allianz Global Investors of America Holdings Inc. and Oppenheimer Group, Inc.; Management Board, Managing Director, Chief Operating Officer and Chief Financial Officer of Allianz Global Investors of America LLC; Managing Director, Chief Operating Officer and Chief Financial Officer of Allianz Global Investors NY Holdings LLC and Allianz Global Investors U.S. Equities LLC; Managing Director and Chief Financial Officer of Allianz Hedge Fund Partners Holding L.P., Allianz-Pac Life Partners LLC and Allianz Global Investors U.S. Retail LLC; Chief Financial Officer of Allianz Global Investors Advertising Agency Inc., Allianz Global Investors Managed Accounts LLC, Allianz Global Investors Distributors LLC, Alpha Vision LLC, Alpha Vision Capital Management LLC, NFJ Investment Group L.P., Nicholas-Applegate Capital Management LLC, Nicholas-Applegate Securities LLC, Oppenheimer Capital LLC, Pacific Investment Management Company LLC, PIMCO Australia Pty Ltd, PIMCO Canada Holding LLC, PIMCO Canada Management Inc., PIMCO Canada Corp., PIMCO Europe Limited, PIMCO Global Advisors LLC, StocksPLUS Management, Inc. and Vision Holdings LLC; Management Board and Chief Financial Officer of Allianz Global Investors Fund Management LLC, Nicholas-Applegate Holdings LLC and OpCap Advisors LLC; Member — Board of Directors and Chief Financial Officer of NFJ Management Inc. and PIMCO Global Advisors (Resources) Limited; and Executive Vice President and Chief Financial Officer of PIMCO Japan Ltd.

Further information about certain of the Funds’ Trustees is available in the Funds’ Statements of Additional Information, dated October 28, 2002, which can be obtained upon request, without charge, by calling the Funds’ shareholder servicing agent at (800) 331-1710.

52 PIMCO Municipal Income Funds III Annual Report | 9.30.07





PIMCO Municipal Income Funds III 
Principal Officers (unaudited)


Name, Date of Birth, Position(s) Held
with Funds. Principal Occupation(s) During Past 5 Years: Brian S. Shlissel
Date of Birth: 11/14/64
President & Chief Executive Officer since: 2002 Executive Vice President, Director of Fund Administration, Allianz Global Investors Fund Management LLC; Director of 8 funds in the Fund Complex; President and Chief Executive Officer of 36 funds in the Fund Complex; Treasurer; Principal Financial and Accounting Officer of 36 funds in the Fund Complex and The Korea Fund, Inc. Lawrence G. Altadonna
Date of Birth: 3/10/66
Treasurer, Principal/Financial and Accounting     Officer since: 2002 Senior Vice President, Allianz Global Investors Fund Management LLC; Treasurer, Principal Financial and Accounting officer of 36 funds in the Fund Complex; Assistant Treasurer of 36 funds in the Fund Complex and The Korea Fund, Inc. Thomas J. Fuccillo
Date of Birth: 3/22/68
Vice President, Secretary & Chief Legal Officer
    since: 2004 Senior Vice President, Senior Counsel, Allianz Global Investors of America L.P., Vice President, Secretary & Chief Legal Officer of 72 funds in the Fund Complex Secretary & Chief Legal Officer of The Korea Fund, Inc.; Formerly, Vice President and Associate General Counsel, Neuberger Berman LLC. Scott Whisten
Date of Birth: 3/13/71
Assistant Treasurer since: 2007 Vice President, Allianz Global Investors Fund Management LLC; Assistant Treasurer of 72 funds in the Fund Complex. Formerly Accounting Manager Prudential Investments (2002-2005). Youse E. Guia
Date of Birth: 9/3/72
Chief Compliance Officer since: 2004 Senior Vice President, Group Compliance Manager, Allianz Global Investors of America L.P., Chief Compliance Officer of 72 funds in the Fund Complex and The Korea Fund, Inc. Formerly, Vice President, Group Compliance Manager, Allianz Global Investors of America L.P. (2002-2004), Audit Manager, Pricewaterhouse Coopers LLP (1996-2002). William V. Healey
Date of Birth: 7/28/53
Assistant Secretary since: 2006 Executive Vice President, Chief Legal Officer-U.S. Retail, Allianz Global Investors of America L.P.; Assistant Secretary of 72 funds in the Fund Complex. Formerly, Vice President and Associate General Counsel/Chief Legal Officer, Asset Management, The Prudential Insurance Company of America (1998-2005). Richard H. Kirk
Date of Birth: 4/6/61
Assistant Secretary since: 2006 Senior Vice President, Allianz Global Investors of America L.P. (since 2004). Senior Vice President, Associate General Counsel, Allianz Global Investors Distributors LLC. Assistant Secretary of 72 funds in the Fund Complex; formerly, Vice President, Counsel, The Prudential Insurance Company of America/American Skandia (2002-2004). Kathleen A. Chapman
Date of Birth: 11/11/54
Assistant Secretary since: 2006 Assistant Secretary of 72 funds in the Fund Complex; Manager IIG Advisory Law, Morgan Stanley (2004-2005); The Prudential Insurance Company of America and Assistant Corporate Secretary of affiliated American Skandia companies (1996-2004). Lagan Srivastava
Date of Birth: 9/20/77
Assistant Secretary since: 2006 Assistant Secretary of 72 funds in the Fund Complex and The Korea Fund, Inc.; formerly Research Assistant, Dechert LLP (2004-2005); Research Assistant, Swidler Berlin Shereff Friedman LLP (2002-2004).

Officers hold office at the pleasure of the Board and until their successors are appointed and qualified or until their earlier resignation or removal.

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Trustees and Principal Officers


Hans W. Kertess Brian S. Shlissel     Trustee, Chairman of the Board of Trustees     President & Chief Executive Officer Paul Belica Lawrence G. Altadonna     Trustee     Treasurer, Principal Financial & Accounting Officer Robert E. Connor Thomas J. Fuccillo     Trustee     Vice President, Secretary & Chief Legal Officer John J. Dalessandro II Scott Whisten     Trustee     Assistant Treasurer John C. Maney Youse E. Guia     Trustee     Chief Compliance Officer William B. Ogden, IV William V. Healey     Trustee     Assistant Secretary R. Peter Sullivan III Richard H. Kirk     Trustee     Assistant Secretary   Kathleen A. Chapman       Assistant Secretary   Lagan Srivastava       Assistant Secretary

Investment Manager

Allianz Global Investors 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

Custodian & Accounting Agent

State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02110

Transfer Agent, Dividend Paying Agent and Registrar

PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017

Legal Counsel

Ropes & Gray LLP
One International Place
Boston, MA 02110-2624

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 the Funds may purchase shares of its common stock in the open market.

The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission (‘‘SEC’’) for the first and third quarters of their fiscal year on Form N-Q. The Funds’ Form N-Qs are available on the SEC’s website at www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Fund’s website at www.allianzinvestors.com/closedendfunds.

On January 3, 2007, the Funds submitted CEO annual certification to the New York Stock Exchange (‘‘NYSE’’) on which the Funds’ principal executive officer certified that he was not aware, as of that date, of any violation by each Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, each Fund’s principal executive and principal financial officer made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q, relating to, among other things, the Funds’ disclosure controls and procedures and internal control over financial reporting, as applicable.

Information on the Funds is available at www.allianzinvestors.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (800) 331-1710.









ITEM 2. CODE OF ETHICS

 

(a)

As of the end of the period covered by this report, the registrant has adopted a code of ethics (the “Section 406 Standards for Investment Companies — Ethical Standards for Principal Executive and Financial Officers”) that applies to the registrant’s Principal Executive Officer and Principal Financial Officer; the registrant’s Principal Financial Officer also serves as the Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-331-1710. The code of ethics are included as an Exhibit 99.CODE ETH hereto.

(b)

During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above.

(c)

During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

The registrant’s Board has determined that Mr. Paul Belica, a member of the Board’s Audit Oversight Committee is an “audit committee financial expert,” and that he is “independent,” for purposes of this Item.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

a)

Audit fees. The aggregate fees billed for each of the last two fiscal years (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $36,265 in 2006 and $37,112 in 2007.

b)

Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the principal accountant that are reasonably related to the performance of the audit registrant’s financial statements and are not reported under paragraph (e) of this Item were $8,059 in 2006 and $8,753 in 2007. These services consist of accounting consultations, agreed upon procedure reports (inclusive of annual review of basic maintenance testing associated with the Preferred Shares), attestation reports and comfort letters.

c)

Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax service and tax planning (“Tax Services”) were $9,000 in 2006 and $9,667 in 2007. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns and calculation of excise tax distributions.

d)

All Other Fees. There were no other fees billed in the Reporting Periods for products and services provided by the Auditor to the Registrant.

e)

1. Audit Committee Pre-Approval Policies and Procedures. The Registrant’s Audit Committee has established policies and procedures for pre-approval of all audit and permissible non-audit services by the Auditor for the Registrant, as well as the Auditor’s engagements related directly to the operations

 

 



and financial reporting of the Registrant. The Registrant’s policy is stated below.

PIMCO California Municipal Income Fund III (the “Fund”)

AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE INDEPENDENT ACCOUNTANTS

The Fund’s Audit Oversight Committee (“Committee”) is charged with the oversight of the Fund’s financial reporting policies and practices and their internal controls. As part of this responsibility, the Committee must pre-approve any independent accounting firm’s engagement to render audit and/or permissible non-audit services, as required by law. In evaluating a proposed engagement by the independent accountants, the Committee will assess the effect that the engagement might reasonably be expected to have on the accountant’s independence. The Committee’s evaluation will be based on:

a review of the nature of the professional services expected to provided,

the fees to be charged in connection with the services expected to be provided,

a review of the safeguards put into place by the accounting firm to safeguard independence, and

periodic meetings with the accounting firm.

POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUND

On an annual basis, the Fund’s Committee will review and pre-approve the scope of the audit of the Fund and proposed audit fees and permitted non-audit (including audit-related) services that may be performed by the Fund’s independent accountants. At least annually, the Committee will receive a report of all audit and non-audit services that were rendered in the previous calendar year pursuant to this Policy. In addition to the Committee’s pre-approval of services pursuant to this Policy, the engagement of the independent accounting firm for any permitted non-audit service provided to the Fund will also require the separate written pre-approval of the President of the Fund, who will confirm, independently, that the accounting firm’s engagement will not adversely affect the firm’s independence. All non-audit services performed by the independent accounting firm will be disclosed, as required, in filings with the Securities and Exchange Commission.

AUDIT SERVICES

The categories of audit services and related fees to be reviewed and pre-approved annually by the Committee are:

Annual Fund financial statement audits

Seed audits (related to new product filings, as required)

SEC and regulatory filings and consents

Semiannual financial statement reviews

AUDIT-RELATED SERVICES

The following categories of audit-related services are considered to be consistent with the role of the Fund’s independent accountants and services falling under one of these categories will be pre-approved by the Committee on an annual basis if the Committee deems those services to be consistent with the accounting firm’s independence:

 

 



Accounting consultations

Fund merger support services

Agreed upon procedure reports (inclusive of quarterly review of Basic Maintenance testing associated with issuance of Preferred Shares and semiannual report review)

Other attestation reports

Comfort letters

Other internal control reports

Individual audit-related services that fall within one of these categories and are not presented to the Committee as part of the annual pre-approval process described above, may be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee Chair (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $150,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

TAX SERVICES

The following categories of tax services are considered to be consistent with the role of the Fund’s independent accountants and services falling under one of these categories will be pre-approved by the Committee on an annual basis if the Committee deems those services to be consistent with the accounting firm’s independence:

Tax compliance services related to the filing or amendment of the following:

Federal, state and local income tax compliance; and, sales and use tax compliance

Timely RIC qualification reviews

Tax distribution analysis and planning

Tax authority examination services

Tax appeals support services

Accounting methods studies

Fund merger support service

Other tax consulting services and related projects

Individual tax services that fall within one of these categories and are not presented to the Committee as part of the annual pre-approval process described above, may be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $150,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

PROSCRIBED SERVICES

The Fund’s independent accountants will not render services in the following categories of non-audit services:

Bookkeeping or other services related to the accounting records or financial statements of the Fund

Financial information systems design and implementation

Appraisal or valuation services, fairness opinions, or contribution-in-kind reports

Actuarial services

Internal audit outsourcing services

Management functions or human resources

Broker or dealer, investment adviser or investment banking services

Legal services and expert services unrelated to the audit

 

 



Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible

PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND COMPLEX

The Committee will pre-approve annually any permitted non-audit services to be provided to Allianz Global Investors Fund Management LLC (Formerly, PA Fund Management LLC) or any other investment manager to the Funds (but not including any sub-adviser whose role is primarily portfolio management and is sub-contracted by the investment manager) (the “Investment Manager”) and any entity controlling, controlled by, or under common control with the Investment Manager that provides ongoing services to the Fund (including affiliated sub-advisers to the Fund), provided, in each case, that the engagement relates directly to the operations and financial reporting of the Fund (such entities, including the Investment Manager, shall be referred to herein as the “Accounting Affiliates”). Individual projects that are not presented to the Committee as part of the annual pre-approval process, may be pre-approved, if deemed consistent with the accounting firm’s independence, by the Committee Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $150,000. Any such pre-approval shall be reported to the full Committee at its next regularly scheduled meeting.

Although the Committee will not pre-approve all services provided to the Investment Manager and its affiliates, the Committee will receive an annual report from the Fund’s independent accounting firm showing the aggregate fees for all services provided to the Investment Manager and its affiliates.

DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES

With respect to the provision of permitted non-audit services to a Fund or Accounting Affiliates, the pre-approval requirement is waived if:

 

(1)

The aggregate amount of all such permitted non-audit services provided constitutes no more than (i) with respect to such services provided to the Fund, five percent (5%) of the total amount of revenues paid by the Fund to its independent accountant during the fiscal year in which the services are provided, and (ii) with respect to such services provided to Accounting Affiliates, five percent (5%) of the total amount of revenues paid to the Fund’s independent accountant by the Fund and the Accounting Affiliates during the fiscal year in which the services are provided;

 

(2)

Such services were not recognized by the Fund at the time of the engagement for such services to be non-audit services; and

 

(3)

Such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by the Committee Chairman (or any other Committee member who is a disinterested trustee under the Investment Company Act to whom this Committee Chairman or other delegate shall be reported to the full Committee at its next regularly scheduled meeting.

 

e)

2. No services were approved pursuant to the procedures contained in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration S-X.

 

f)

Not applicable

 

 



 

g)

Non-audit fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to the Adviser, for the 2006 Reporting Period was $2,228,248 and the 2007 Reporting Period was $2,787,744.

 

h)

Auditor Independence. The Registrant’s Audit Oversight Committee has considered whether the provision of non-audit services that were rendered to the Adviser which were not pre- approved is compatible with maintaining the Auditor’s independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT

The Fund has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee of the Fund is comprised of Robert E. Connor, Paul Belica, John J. Dalessandro II, Hans W. Kertess, R. Peter Sullivan III and William B. Ogden, IV.

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.

PIMCO MUNICIPAL INCOME FUND III

PIMCO CALIFORNIA MUNICIPAL INCOME FUND III

PIMCO NEW YORK MUNICIPAL INCOME FUND III

(each a “Trust”)

PROXY VOTING POLICY

1.

It is the policy of each Trust that proxies should be voted in the interest of its shareholders, as determined by those who are in the best position to make this determination. Each Trust believes that the firms and/or persons purchasing and selling securities for the Trust and analyzing the performance of the Trust’s securities are in the best position and have the information necessary to vote proxies in the best interests of the Trust and its shareholders, including in situations where conflicts of interest may arise between the interests of shareholders, on one hand, and the interests of the investment adviser, a sub-adviser and/or any other affiliated person of the Trust, on the other. Accordingly, each Trust’s policy shall be to delegate proxy voting responsibility to those entities with portfolio management responsibility for the Trust.

2.

Each Trust delegates the responsibility for voting proxies to Allianz Global Investors Fund Management LLC (“AGIFM”), which will in turn delegate such responsibility to the sub-adviser of the particular Trust. AGIFM’s Proxy Voting Policy Summary is attached as Appendix A hereto. Summary of the detailed proxy voting policies of the Trust’s current sub-adviser is set forth in Appendix B attached hereto. Such summaries may be revised from time to time to reflect changes to the sub-advisers’ detailed proxy voting policies.

3.

The party voting the proxies (i.e., the sub-adviser or portfolio manager) shall vote such proxies in accordance with such party’s proxy voting policies and, to the extent consistent with such policies, may rely on information and/or recommendations supplied by others.

4.

AGIFM and the sub-adviser of a Trust with proxy voting authority shall deliver a copy of its respective proxy voting policies and any material amendments thereto to the applicable Board of the Trust promptly after the adoption or amendment of any such policies.

5.

The party voting the proxy shall: (i) maintain such records and provide such voting information as is required for the Trusts’ regulatory filings including, without limitation, Form N-PX and the required disclosure of policy called for by Item 18 of Form N-2 and Item 7 of Form N-CSR; and (ii) shall provide such additional information as may be requested, from time to time, by the Board or the Trusts’ Chief Compliance Officer.

6.

This Proxy Voting Policy Statement (including Appendix B), the Proxy Voting Policy Summary of AGIFM and summary of the detailed proxy voting policy of the sub-adviser of a Trust with proxy voting authority, shall be made available (i) without charge, upon request, by calling 1-800-426-0107 and (ii) on the Trusts’ website at www.allianzinvestors.com. In addition, to the extent required by applicable law or determined by the Trusts’ Chief Compliance Officer or Board of Trustees, the Proxy Voting Policy Summary of AGIFM and summaries of the detailed proxy voting policies of each sub-adviser with proxy voting authority shall also be included in the Trusts’ Registration Statements or Form N-CSR filings.

 

 

 

 



Appendix A

ALLIANZ GLOBAL INVESTORS FUND MANAGEMENT LLC (“AGIFM”)

1.

It is the policy of AGIFM that proxies should be voted in the interest of the shareholders of the applicable fund, as determined by those who are in the best position to make this determination. AGIFM believes that the firms and/or persons purchasing and selling securities for the funds and analyzing the performance of the funds’ securities are in the best position and have the information necessary to vote proxies in the best interests of the funds and their shareholders, including in situations where conflicts of interest may arise between the interests of shareholders, on one hand, and the interests of the investment adviser, a sub-adviser and/or any other affiliated person of the fund, on the other. Accordingly, AGIFM’s policy shall be to delegate proxy voting responsibility to those entities with portfolio management responsibility for the funds.

2.

AGIFM, for each fund which it acts as an investment adviser, delegates the responsibility for voting proxies to the sub-adviser for the respective fund, subject to the terms hereof.

3.

The party voting the proxies (e.g., the sub-adviser) shall vote such proxies in accordance with such party’s proxy voting policies and, to the extent consistent with such policies, may rely on information and/or recommendations supplied by others.

4.

AGIFM and each sub-adviser of a fund shall deliver a copy of its respective proxy voting policies and any material amendments thereto to the board of the relevant fund promptly after the adoption or amendment of any such policies.

5.

The party voting the proxy shall: (i) maintain such records and provide such voting information as is required for such funds’ regulatory filings including, without limitation, Form N-PX and the required disclosure of policy called for by Item 18 of Form N-2 and Item 7 of Form N-CSR; and (ii) shall provide such additional information as may be requested, from time to time, by such funds’ respective boards or chief compliance officers.

6.

This Proxy Voting Policy Summary and summaries of the proxy voting policies for each sub-adviser of a fund advised by AGIFM shall be available (i) without charge, upon request, by calling 1-800-426-0107 and (ii) at www.allianzinvestors.com. In addition, to the extent required by applicable law or determined by the relevant fund’s board of directors/trustees or chief compliance officer, this Proxy Voting Policy Summary and summaries of the detailed proxy voting policies of each sub-adviser and each other entity with proxy voting authority for a fund advised by AGIFM shall also be included in the Registration Statement or Form N-CSR filings for the relevant fund.

 

 

 

 



Appendix B

PACIFIC INVESTMENT MANAGEMENT COMPANY LLC

Pacific Investment Management Company LLC (“PIMCO”) has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. PIMCO has implemented the Proxy Policy for each of its clients as required under applicable law, unless expressly directed by a client in writing to refrain from voting that client’s proxies. Recognizing that proxy voting is a rare event in the realm of fixed income investing and is typically limited to solicitation of consent to changes in features of debt securities, the Proxy Policy also applies to any voting rights and/or consent rights of PIMCO, on behalf of its clients, with respect to debt securities, including but not limited to, plans of reorganization, and waivers and consents under applicable indentures.

The Proxy Policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of PIMCO’s clients. Each proxy is voted on a case-bycase basis taking into consideration any relevant contractual obligations as well as other relevant facts and circumstances at the time of the vote. In general, PIMCO reviews and considers corporate governance issues related to proxy matters and generally supports proposals that foster good corporate governance practices. PIMCO may vote proxies as recommended by management on routine matters related to the operation of the issuer and on matters not expected to have a significant economic impact on the issuer and/or its shareholders.

PIMCO will supervise and periodically review its proxy voting activities and implementation of the Proxy Policy. PIMCO will review each proxy to determine whether there may be a material conflict between PIMCO and its client. If no conflict exists, the proxy will be forwarded to the appropriate portfolio manager for consideration. If a conflict does exist, PIMCO will seek to resolve any such conflict in accordance with the Proxy Policy. PIMCO seeks to resolve any material conflicts of interest by voting in good faith in the best interest of its clients. If a material conflict of interest should arise, PIMCO will seek to resolve such conflict in the client’s best interest by pursuing any one of the following courses of action: (i) convening a committee to assess and resolve the conflict; (ii) voting in accordance with the instructions of the client; (iii) voting in accordance with the recommendation of an independent third-party service provider; (iv) suggesting that the client engage another party to determine how the proxy should be voted; (v) delegating the vote to a third-party service provider; or (vi) voting in accordance with the factors discussed in the Proxy Policy.

Clients may obtain a copy of PIMCO’s written Proxy Policy and the factors that PIMCO may consider in determining how to vote a client’s proxy. Except as required by law, PIMCO will not disclose to third parties how it voted on behalf of a client. However, upon request from an appropriately authorized individual, PIMCO will disclose to its clients or the entity delegating the voting authority to PIMCO for such clients, how PIMCO voted such client’s proxy. In addition, a client may obtain copies of PIMCO’s Proxy Policy and information as to how its proxies have been voted by contacting PIMCO.

 

 

 

 



ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

(a)(1)

As of December 7, 2007 the following individual has primary responsibility for the day-to-day implementation of the PIMCO Municipal Income Fund III (PMX), PIMCO California Municipal Income Fund III (PZC) and PIMCO New York Municipal Income Fund III (PYN) (each a “Fund” and collectively, the “Funds”):

Mark V. McCray

Mr. McCray has been the portfolio manager for each of the Funds since inception (October 2002). Mr. McCray is a Managing Director and Portfolio Manager responsible for the firm’s municipal bond portfolios and tax-sensitive portfolios. He is a senior member of PIMCO’s investment strategy group and has served as Chairman of PIMCO’s Shadow Investment Committee and as a rotating member of the firm’s Investment Committee. He joined the firm in 2000 from Goldman, Sachs & Co. in New York, where he was Vice President and co-head of municipal bond trading, with primary responsibility for the firm’s proprietary municipal trading. Mr. McCray has nineteen years of investment experience and holds a Bachelor’s degree in Finance and Real Estate from Temple University and an MBA from The Wharton School of the University of Pennsylvania, with concentrations in Finance, Accounting, and Strategic Management.

(a)(2)

The following summarizes information regarding each of the accounts, excluding the Funds that were managed by the Portfolio Manager as of September 30, 2007, including accounts managed by a team, committee, or other group that includes the Portfolio Manager. Unless mentioned otherwise, the advisory fee charged for managing each of the accounts listed below is not based on performance.

 

 

 

 

 

Registered Investment Companies

 

Other Pooled Investment Vehicles

 

Other Accounts

PM

 

Fund

 

#

 

AUM($million)

 

#

 

AUM($million)

 

#

 

AUM($million)

Mark V. McCray

 

PMX

 

13

 

5,310.02

 

2

 

789.92

 

18

 

1,636.85

 

PZC

 

13

 

5,541.18

 

2

 

789.92

 

18

 

1,636.85

 

 

PYN

 

13

 

5,912.24

 

2

 

789.92

 

18

 

1,636.85

From time to time, potential conflicts of interest may arise between a portfolio manager’s management of the investments of a Fund, on the one hand, and the management of other accounts, on the other. The other accounts might have similar investment objectives or strategies a Fund, track the same index a Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Funds. The other accounts might also have different investment objectives or strategies than the Funds.

Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of the portfolio manager’s day-to-day management of a Fund. Because of their positions with the Funds, the portfolio managers know the size, timing and possible market impact of a Fund’s trades. It is theoretically possible that the portfolio managers could use this information to the advantage of other accounts they manage and to the possible detriment of a Fund.

 

 

 

 



Investment Opportunities. A potential conflict of interest may arise as result of the portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both a Fund and other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both the Fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a Fund and another account. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.

Under PIMCO’s allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines and PIMCO’s investment outlook. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Funds and certain pooled investment vehicles, including investment opportunity allocation issues.

Performance Fees. A portfolio manager may advise certain accounts with respect to which the advisory fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to a Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the Funds and such other accounts on a fair and equitable basis over time.

(a) (3)

As of September 30, 2007, the following explains the compensation structure of the individual that has primary responsibility for day-to-day portfolio management of the Funds:

Portfolio Manager Compensation

PIMCO has adopted a “Total Compensation Plan” for its professional level employees, including its portfolio managers, that is designed to pay competitive compensation and reward performance, integrity and teamwork consistent with the firm’s mission statement. The Total Compensation Plan includes a significant incentive component that rewards high performance standards, work ethic and consistent individual and team contributions to the firm. The compensation of portfolio managers consists of a base salary, a bonus, and may include a retention bonus. Portfolio managers who are Managing Directors of PIMCO also receive compensation from PIMCO’s profits. Certain employees of PIMCO, including portfolio managers, may elect to defer compensation through PIMCO’s deferred compensation plan. PIMCO also offers its employees a non-contributory defined contribution plan through which PIMCO makes a contribution based on the employee’s compensation. PIMCO’s contribution rate increases at a specified compensation level, which is a level that would include portfolio managers.

Salary and Bonus. Base salaries are determined by considering an individual portfolio manager’s experience and expertise and may be reviewed for adjustment annually. Portfolio managers are entitled to receive bonuses, which may be significantly more than their base salary, upon attaining certain performance objectives based on predetermined measures of group or department success. These goals are specific to individual portfolio managers and are mutually agreed upon annually by each portfolio manager and his or her manager. Achievement of these goals is an important, but not exclusive, element of the bonus decision process.

In addition, the following non-exclusive list of qualitative criteria (collectively, the “Bonus Factors”) may be considered when determining the bonus for portfolio managers:

 

3-year, 2-year and 1-year dollar-weighted and account-weighted, pre-tax investment performance as judged against the applicable benchmarks for each account managed by a portfolio manager (including the Funds) and relative to applicable industry peer groups;

 

Appropriate risk positioning that is consistent with PIMCO’s investment philosophy and the Investment Committee/CIO approach to the generation of alpha;

 

 

 

 



 

Amount and nature of assets managed by the portfolio manager;

 

Consistency of investment performance across portfolios of similar mandate and guidelines (reward low dispersion);

 

Generation and contribution of investment ideas in the context of PIMCO’s secular and cyclical forums, portfolio strategy meetings, Investment Committee meetings, and on a day-to-day basis;

 

Absence of defaults and price defaults for issues in the portfolios managed by the portfolio manager;

 

Contributions to asset retention, gathering and client satisfaction;

 

Contributions to mentoring, coaching and/or supervising; and

 

Personal growth and skills added.

A portfolio manager’s compensation is not based directly on the performance of any Fund or any other account managed by that portfolio manager. Final bonus award amounts are determined by the PIMCO Compensation Committee.

Retention Bonuses. Certain portfolio managers may receive a discretionary, fixed amount retention bonus, based upon the Bonus Factors and continued employment with PIMCO. Each portfolio manager who is a Senior Vice President or Executive Vice President of PIMCO receives a variable amount retention bonus, based upon the Bonus Factors and continued employment with PIMCO.

Investment professionals, including portfolio managers, are eligible to participate in a Long Term Cash Bonus Plan (“Cash Bonus Plan”), which provides cash awards that appreciate or depreciate based upon the performance of PIMCO’s parent company, Allianz Global Investors, and PIMCO over a three-year period. The aggregate amount available for distribution to participants is based upon Allianz Global Investors’ profit growth and PIMCO’s profit growth. Participation in the Cash Bonus Plan is based upon the Bonus Factors, and the payment of benefits from the Cash Bonus Plan, is contingent upon continued employment at PIMCO.

Profit Sharing Plan. Instead of a bonus, portfolio managers who are Managing Directors of PIMCO receive compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO’s net profits. Portfolio managers who are Managing Directors receive an amount determined by the Managing Director Compensation Committee, based upon an individual’s overall contribution to the firm and the Bonus Factors.

From time to time, under the PIMCO Class B Unit Purchase Plan, Managing Directors and certain executive management (including Executive Vice Presidents) of PIMCO may become eligible to purchase Class B Units of PIMCO. Upon their purchase, the Class B Units are immediately exchanged for Class A Units of PIMCO Partners, LLC, a California limited liability company that holds a minority interest in PIMCO and is owned by the Managing Directors and certain executive management of PIMCO. The Class A Units of PIMCO Partners, LLC entitle their holders to distributions of a portion of the profits of PIMCO. The PIMCO Compensation Committee determines which Managing Directors and executive management may purchase Class B Units and the number of Class B Units that each may purchase. The Class B Units are purchased pursuant to full recourse notes issued to the holder. The base compensation of each Class B Unit holder is increased in an amount equal to the principal amortization applicable to the notes given by the Managing Director or member of executive management.

Portfolio managers who are Managing Directors also have long-term employment contracts, which guarantee severance payments in the event of involuntary termination of a Managing Director’s employment with PIMCO.

 

 

 

 



(a)(4)

The following summarizes the dollar range of securities the portfolio manager for the Funds beneficially owned of the Funds that he managed as of 09/30/07.

 

PIMCO Municipal Income Fund III
PIMCO California Municipal Income Fund III
PIMCO New York Municipal Income Fund III

Portfolio Manager

 

Dollar Range of Equity Securities in the Funds

Mark V. McCray

 

None

ITEM 9.

PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED COMPANIES

 

 PERIOD

 

TOTAL NUMBER
OF SHARES
PURCHASED

 

AVERAGE
PRICE PAID
PER SHARE

 

TOTAL NUMBER
OF SHARES PURCHASED
AS PART OF PUBLICLY
ANNOUNCED PLANS OR
PROGRAMS

 

MAXIMUM NUMBER OF
SHARES THAT MAY YET BE
PURCHASED UNDER THE PLANS
OR PROGRAMS

October 2006

 

N/A

 

$16.12

 

7,710

 

N/A

November 2006

 

N/A

 

$16.15

 

7,806

 

N/A

December 2006

 

N/A

 

$16.20

 

7,597

 

N/A

January 2007

 

N/A

 

$17.06

 

7,193

 

N/A

February 2007

 

N/A

 

$15.94

 

7,108

 

N/A

March 2007

 

N/A

 

$15.73

 

7,176

 

N/A

April 2007

 

N/A

 

$16.27

 

6,933

 

N/A

May 2007

 

N/A

 

$16.33

 

6,616

 

N/A

June 2007

 

N/A

 

$15.71

 

6,904

 

N/A

July 2007

 

N/A

 

$14.81

 

7,373

 

N/A

August 2007

 

N/A

 

$14.58

 

7,785

 

N/A

September 2007

 

N/A

 

$14.12

 

6,482

 

N/A

 



ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.

ITEM 11. CONTROLS AND PROCEDURES

(a) The registrant’s President and 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 Act (17 CFR 270.30a-3(c))), 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 over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants control over financial reporting.

ITEM 12. EXHIBITS

(a) (1) Exhibit 99.CODE ETH - Code of Ethics

(a) (2) Exhibit 99 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.

 

(Registrant) PIMCO California Municipal Income Fund III 

 

 

 


By

/s/ Brian S. Shlissel

 

 

President and Chief Executive Officer 

 

 

 

       

Dated: December 7, 2007

     

 

 

 

 

 

By

/s/ Lawrence G. Altadonna

 

 

 

Treasurer, Principal Financial & Accounting Officer 

 

 

 

       

Dated: December 7, 2007

     

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 and Chief Executive Officer 

 

 

 

       

Dated: December 7, 2007

     

 

 

 

 

 

By

/s/ Lawrence G. Altadonna

 

 

 

Treasurer, Principal Financial & Accounting Officer 

 

 

 

       

Dated: December 7, 2007