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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act File Number:		811-21188
Registrant Name:		PIMCO California Municipal Income Fund III
Address of Principal Executive Offices:		1633 Broadway, 41st Floor New York, NY 10019
Name and Address of Agent for Service:		Lawrence G. Altadonna 1633 Broadway, 41st Floor New York, NY 10019
Registrant’s telephone number, including area code:		212-739-3371
Date of Fiscal Year End:		September 30, 2012
Date of Reporting Period:		December 31, 2011

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-2001. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

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Item 1. Schedule of Investments

PIMCO California Municipal Income Fund III Schedule of Investments

December 31, 2011 (unaudited)

 

Principal Amount (000s)				Value*
CALIFORNIA MUNICIPAL BONDS & NOTES—96.2%
$1,250		Bay Area Toll Auth. Rev., San Francisco Bay Area,
		5.00%, 4/1/34, Ser. F-1		$	1,318,338
1,000		Cathedral City Public Financing Auth., Tax Allocation,
		5.00%, 8/1/33, Ser. A (NPFGC)			878,750
1,150		Ceres Redev. Agcy., Tax Allocation,
		Project Area No. 1, 5.00%, 11/1/33 (NPFGC)			1,077,366
2,000		Chula Vista Rev., San Diego Gas & Electric, 5.875%, 2/15/34, Ser. B			2,226,020
550		City & Cnty. of San Francisco, Capital Improvement Projects, CP,
		5.25%, 4/1/31, Ser. A			574,167
1,415		Contra Costa Cnty. Public Financing Auth., Tax Allocation,
		5.625%, 8/1/33, Ser. A			1,296,862
3,775		Cucamonga School Dist., CP, 5.20%, 6/1/27			3,867,714
		Educational Facs. Auth. Rev. (f),
9,800		Claremont McKenna College, 5.00%, 1/1/39			10,337,334
10,000		Univ. of Southern California, 5.00%, 10/1/39, Ser. A			10,682,400
1,695		El Dorado Irrigation Dist. & El Dorado Water Agcy., CP,
		5.75%, 8/1/39, Ser. A (AGC)			1,752,935
		Golden State Tobacco Securitization Corp. Rev.,
2,750		5.00%, 6/1/33, Ser. A-1			1,923,845
11,000		5.00%, 6/1/45 (AMBAC-TCRS)			10,225,930
4,000		5.00%, 6/1/45, Ser. A (FGIC-TCRS)			3,718,520
13,865		5.75%, 6/1/47, Ser. A-1			10,058,642
		Health Facs. Financing Auth. Rev.,
		Adventist Health System, Ser. A,
500		5.00%, 3/1/33			500,135
4,000		5.75%, 9/1/39			4,225,040
		Catholic Healthcare West, Ser. A,
1,935		6.00%, 7/1/34			2,004,912
4,000		6.00%, 7/1/39			4,306,760
450		Children’s Hospital of Los Angeles, 5.25%, 7/1/38 (AGM)			455,836
500		Children’s Hospital of Orange Cnty., 6.50%, 11/1/38, Ser. A			548,020
6,000		Cottage Health System, 5.00%, 11/1/33, Ser. B (NPFGC)			6,017,160
1,300		Scripps Health, 5.00%, 11/15/36, Ser. A			1,336,491
2,900		Stanford Hospital, 5.25%, 11/15/40, Ser. A-2			3,040,882
		Sutter Health,
1,000		5.00%, 8/15/35, Ser. D			1,019,060
5,000		5.00%, 8/15/38, Ser. A			5,047,350
500		5.00%, 11/15/42, Ser. A (IBC-NPFGC)			501,040
1,200		6.00%, 8/15/42, Ser. B			1,330,872
150		Lancaster Redev. Agcy. Rev., Capital Improvements Projects,
		5.90%, 12/1/35			142,274
500		Lancaster Redev. Agcy., Tax Allocation, 6.875%, 8/1/39			514,045
5,600		Long Beach Bond Finance Auth. Rev.,
		Long Beach Natural Gas, 5.50%, 11/15/37, Ser. A			5,165,160
5,000		Long Beach Unified School Dist., GO, 5.75%, 8/1/33, Ser. A			5,746,100
		Los Angeles Department of Water & Power Rev. (f),
6,000		4.75%, 7/1/30, Ser. A-2 (AGM)			6,200,460

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PIMCO California Municipal Income Fund III Schedule of Investments

December 31, 2011 (unaudited) (continued)

 

Principal Amount (000s)						Value*
	$10,000			5.00%, 7/1/39, Ser. A		$	10,560,700
				Los Angeles Unified School Dist., GO,
	9,580			4.75%, 1/1/28, Ser. A (NPFGC)			9,764,798
	10,000			5.00%, 1/1/34, Ser. I (f)			10,502,900
	550			Malibu, City Hall Project, CP, 5.00%, 7/1/39, Ser. A			575,140
	1,000			Manteca Financing Auth. Sewer Rev., 5.75%, 12/1/36			1,085,100
	5,000			Metropolitan Water Dist. of Southern California Rev.,
				5.00%, 7/1/37, Ser. A (f)			5,304,900
	2,980			Modesto Irrigation Dist., Capital Improvement Projects, CP,
				5.00%, 7/1/33, Ser. A (NPFGC)			2,991,831
	3,000			Montebello Unified School Dist., GO, 5.00%, 8/1/33 (AGM)			3,166,470
	1,700			M-S-R Energy Auth. Rev., 6.50%, 11/1/39, Ser. B			1,943,270
	1,000			Municipal Finance Auth. Rev., Azusa Pacific Univ. Project,
				7.75%, 4/1/31, Ser. B			1,082,050
	5,000			Oakland, GO, 5.00%, 1/15/33, Ser. A (NPFGC)			5,243,100
	3,900			Orange Unified School Dist., CP, 4.75%, 6/1/29 (NPFGC)			4,006,041
	1,250			Peralta Community College Dist., GO, 5.00%, 8/1/39, Ser. C			1,291,312
	1,250			Pollution Control Financing Auth. Rev.,
				American Water Capital Corp. Project, 5.25%, 8/1/40 (a)(b)			1,233,550
	1,950			Poway Unified School Dist., Special Tax, 5.125%, 9/1/28			1,929,408
	5,000			Riverside, CP, 5.00%, 9/1/33 (AMBAC)			4,832,800
	500			Rocklin Unified School Dist. Community Facs. Dist., Special Tax,
				5.00%, 9/1/29 (NPFGC)			500,830
	3,250			Sacramento Municipal Utility Dist. Rev.,
				5.00%, 8/15/33, Ser. R (NPFGC)			3,289,942
	6,250			San Diego Cnty. Water Auth., CP, 5.00%, 5/1/38, Ser. 2008-A (AGM)			6,517,688
	12,075			San Diego Community College Dist., GO, 5.00%, 5/1/28, Ser. A (AGM)			12,829,929
	4,000			San Diego Public Facs. Financing Auth. Sewer Rev.,
				5.25%, 5/15/39, Ser. A			4,292,160
	2,200			San Diego Regional Building Auth. Rev.,
				Cnty. Operations Center & Annex, 5.375%, 2/1/36, Ser. A			2,367,838
	1,500			San Diego State Univ. Foundation Rev., 5.00%, 3/1/27, Ser. A (NPFGC)			1,501,755
	1,500			San Jose Hotel Tax Rev., Convention Center Expansion, 6.50%, 5/1/36			1,600,230
	12,200			San Marcos Public Facs. Auth., Tax Allocation,
				5.00%, 8/1/33, Ser. A (FGIC-NPFGC)			11,686,990
	1,000			San Marcos Unified School Dist., GO, 5.00%, 8/1/38, Ser. A			1,053,620
	500			Santa Clara Cnty. Financing Auth. Rev.,
				EI Camino Hospital, 5.75%, 2/1/41, Ser. A (AMBAC)			520,485
	1,200			Santa Cruz Cnty. Redev. Agcy., Tax Allocation,
				Live Oak/Soquel Community, 7.00%, 9/1/36, Ser. A			1,350,192
	4,425			South Tahoe JT Powers Financing Auth. Rev.,
				South Tahoe Redev. Project, 5.45%, 10/1/33, Ser. 1-A			4,094,098
	7,300			State, GO, 6.00%, 4/1/38			8,243,525
				State Public Works Board Rev.,
	2,000			California State Univ., 6.00%, 11/1/34, Ser. J			2,172,480
	2,050			Univ. CA M.I.N.D. Inst., 5.00%, 4/1/28, Ser. A			2,116,645
	500			Statewide Communities Dev. Auth. Rev.,
				American Baptist Homes West, 6.25%, 10/1/39			506,355
				California Baptist Univ.,
	1,300			5.50%, 11/1/38, Ser. A			1,172,262
	500			6.50%, 11/1/21			545,435

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PIMCO California Municipal Income Fund III Schedule of Investments

December 31, 2011 (unaudited) (continued)

 

Principal Amount (000s)						Value*
				Catholic Healthcare West,
	$1,015			5.50%, 7/1/31, Ser. D		$	1,056,869
	1,015			5.50%, 7/1/31, Ser. E			1,056,869
	4,500			Kaiser Permanente, 5.00%, 3/1/41, Ser. B			4,514,760
	1,000			Lancer Student Housing Project, 7.50%, 6/1/42			1,054,360
	7,300			Los Angeles Jewish Home, 5.50%, 11/15/33 (CA St. Mtg.)			7,385,556
	15,000			Memorial Health Services, 5.50%, 10/1/33, Ser. A			15,132,600
				Methodist Hospital Project (FHA),
	2,000			6.625%, 8/1/29			2,422,460
	7,200			6.75%, 2/1/38			8,420,760
	3,100			St. Joseph Health System, 5.75%, 7/1/47, Ser. A (FGIC)			3,250,195
				Sutter Health,
	10,000			5.50%, 8/15/34, Ser. B (f)			10,062,100
	1,800			6.00%, 8/15/42, Ser. A			1,996,308
	11,000			Trinity Health, 5.00%, 12/1/41			11,267,190
	2,000			Univ. of California Irvine E. Campus, 5.375%, 5/15/38 (c)			2,022,580
	3,505			Statewide Communities Dev. Auth.,
				The Internext Group, CP, 5.375%, 4/1/30			3,274,792
				Tobacco Securitization Agcy. Rev.,
				Alameda Cnty.,
	8,100			5.875%, 6/1/35			6,448,248
	7,000			6.00%, 6/1/42			5,423,390
	2,000			Kern Cnty., 6.125%, 6/1/43, Ser. A			1,628,860
	5,000			Tobacco Securitization Auth. of Southern California Rev.,
				5.00%, 6/1/37, Ser. A-1			3,559,200
	2,950			Torrance Rev., Torrance Memorial Medical Center,
				5.50%, 6/1/31, Ser. A			2,961,829
	1,000			West Basin Municipal Water Dist., CP, 5.00%, 8/1/30, Ser. A (NPFGC)			1,014,150
	2,000			Western Municipal Water Dist. Facs. Auth. Rev.,
				5.00%, 10/1/39, Ser. B			2,142,860
	1,000			Westlake Village, CP, 5.00%, 6/1/39			1,036,720
	2,500			William S. Hart Union High School Dist., Special Tax,
				6.00%, 9/1/33, Ser. 2002-1			2,508,725
	2,750			Woodland Finance Auth. Rev., 5.00%, 3/1/32 (XLCA)			2,841,382
				Total California Municipal Bonds & Notes (cost—$323,469,649)			342,399,012
	OTHER MUNICIPAL BONDS & NOTES—3.5%
				Indiana—1.2%
	5,000			Vigo Cnty. Hospital Auth. Rev., Union Hospital, Inc., 5.75%, 9/1/42 (a)(b)			4,304,050
				New Jersey—0.2%
	1,000			Tobacco Settlement Financing Corp. Rev., 4.75%, 6/1/34, Ser. 1-A			718,970
				New York—1.0%
	3,300			New York City Municipal Water Finance Auth. Water & Sewer Rev.,
				5.00%, 6/15/37, Ser. D (f)			3,493,314

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PIMCO California Municipal Income Fund III Schedule of Investments

December 31, 2011 (unaudited) (continued)

 

Principal Amount (000s)						Value*
				Puerto Rico—1.1%
				Sales Tax Financing Corp. Rev.,
	$1,535			5.00%, 8/1/46, Ser. C		$	1,583,261
	2,200			5.25%, 8/1/43, Ser. A-1			2,283,732
							3,866,993
				Total Other Municipal Bonds & Notes (cost—$10,444,145)			12,383,327
	CALIFORNIA VARIABLE RATE NOTES (a)(b)(d)(e)—0.3%
	1,000			Los Angeles Community College Dist., GO, 11.71%, 8/1/33, Ser. 3096
				(cost—$996,653)			1,185,700
				Total Investments (cost—$334,910,447) (g)—100.0%		$	355,968,039

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Notes to Schedule of Investments:

 

*

Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services.

Portfolio securities and other financial instruments for which market quotations are not readily available, or for which a development/event occurs that may significantly impact the value of a security, are fair-valued, in good faith, pursuant to procedures established by the Board of Trustees, or persons acting at their discretion pursuant to procedures established by the Board of Trustees. The Fund’s investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Securities purchased on a when-issued basis are marked to market daily until settlement at the forward settlement date. Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.

The prices used by the Fund to value securities may differ from the value that would be realized if the securities were sold and these differences could be material. The Fund’s net asset value (“NAV”) is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for business.

 

(a)	Private Placement—Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $6,723,300, representing 1.9% of total investments.

 

(b)	144A—Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid.

 

(c)	When-issued. To be settled after December 31, 2011.

 

(d)	Inverse Floater—The interest rate shown bears an inverse relationship to the interest rate on another security or the value of an index. The interest rate disclosed reflects the rate in effect on December 31, 2011.

 

(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 December 31, 2011.

 

(f)

Residual Interest Bonds held in Trust—Securities represent underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the/each Fund acquired the residual interest certificates. These securities serve as collateral in a financing transaction.

 

(g)

At December 31, 2011, the cost basis of portfolio securities for federal income tax purposes was $293,787,312. Gross unrealized appreciation was $27,648,800, gross unrealized depreciation was $5,851,596 and net unrealized appreciation was $21,797,204. The difference between book and tax cost was attributable to inverse floater transactions.

 

Glossary:

AGC—insured by Assured Guaranty Corp.

AGM—insured by Assured Guaranty Municipal Corp.

AMBAC—insured by American Municipal Bond Assurance Corp.

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

GO—General Obligation Bond

IBC—Insurance Bond Certificate

NPFGC—insured by National Public Finance Guarantee Corp.

TCRS—Temporary Custodian Receipts

XLCA—insured by XL Capital Assurance

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Fair Value Measurements,

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in

an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:

 

•

Level 1 – quoted prices in active markets for identical investments that the Fund has the ability to access

 

•

Level 2 – valuations based on other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) or quotes from inactive exchanges

 

•

Level 3 – valuations based on significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in the aggregate, that is significant to fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation technique used.

The valuation techniques used by the Fund to measure fair value during the three months ended December 31, 2011 maximized the use of observable inputs and minimized the use of unobservable inputs.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following are certain inputs and techniques that the Fund generally uses to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with Generally Accepted Accounting Principles.

Municipal Bonds & Notes and Variable Rate Notes — Municipal bonds and notes and variable rate notes are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond or note, state of issuance, benchmark yield curves, and bond or note insurance. To the extent that these inputs are observable, the values of municipal bonds and notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

The Fund’s policy is to recognize transfers between levels at the end of the reporting period.

A summary of the inputs used at December 31, 2011 in valuing the Fund’s assets and liabilities is listed below (refer to the Schedule of Investments for detailed information on Investments in Securities):

 

		Level 1 - Quoted  Prices				Level 2 - Other Significant Observable Inputs				Level 3 - Significant Unobservable Inputs				Value at 12/31/11
Investments in Securities—Assets
California Municipal Bonds & Notes			—			$	342,399,012				—			$	342,399,012
Other Municipal Bonds & Notes			—				12,383,327				—				12,383,327
California Variable Rate Notes			—				1,185,700				—				1,185,700
Total Investments			—			$	355,968,039				—			$	355,968,039

There were no significant transfers between Levels 1 and 2 during the three months ended December 31, 2011.

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Item 2. Controls and Procedures

(a) The registrant’s President & Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a -3(c))), are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no significant changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a -3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits

(a) Exhibit 99.302 Cert. — Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant: PIMCO California Municipal Income Fund III

 

By		/s/    Brian S. Shlissel
President & Chief Executive Officer
Date:		February 24, 2012

 

By		/s/     Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Date:		February 24, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By		/s/    Brian S. Shlissel
President & Chief Executive Officer
Date:		February 24, 2012

 

By		/s/    Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Date:		February 24, 2012