<PAGE>
MUNICIPAL INCOME TRUST III
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- - -----------------------------------------------------------------------------
Strong economic growth in the fourth quarter of 1993 and a shift in
Federal Reserve Board monetary policy during the first half of 1994 resulted
in the sharpest increase in interest rates in more than six years. At the
beginning of the year, market concerns about inflation developed as the
economy approached full employment and commodity prices moved upward. The
Federal Reserve Board responded by tightening monetary policy. Between
February and August, the central bank raised the federal-funds rate -- the
interest rate banks charge each other for overnight loans -- from 3.00 percent
to 4.75 percent in five separate moves. Between May and August, the discount
rate -- the interest rate the Federal Reserve charges member banks for loans
- - -- was increased 100 basis points to 4.00 percent.
Long-term municipal bond yields, as measured by The Bond Buyer Revenue
Bond Index,* reached a record low 5.41 percent in mid October. Between November
and January, tax-exempt bond yields rose as high as 5.75 percent, but declined
on heavy demand in December and January. The Index yield jumped 89 basis points
from 5.50 percent to 6.39 percent in February and March. Municipal bonds began
to stabilize in the second quarter despite monthly volatility of 15 to 20 basis
points. The Revenue Bond Index reached a high yield of 6.60 percent in early
May, but by the end of August had fallen to 6.43 percent.
The municipal market continued to be influenced by supply and demand
conditions. New-issue underwriting totaled a record $290 billion in 1993. The
pace of new-issue activity over the first eight months of 1994, however,
slowed 40 percent to a projected annual rate of $175 billion. By way of
comparison, municipal bond maturities and calls for redemption are expected
to reach $190 billion, reducing the amount of debt outstanding. This scarcity
helped long-term municipal securities outperform their U.S. Treasury
counterparts through the summer.
PERFORMANCE
For the 12-month period ended August 31, 1994, Municipal Income Trust III
paid shareholders tax-free income dividends totaling $0.565 per share and
long-term capital gains distributions totaling $0.026 per share. Over the
12-month period, the Fund's net asset value declined from $10.05 to $9.81 per
share. For the fiscal year, the Fund declined 6.60 percent based on a change
in New York Stock Exchange (NYSE) market price from $10.25 on August 31, 1993
to $9.00 per share on August 31, 1994 including the reinvestment of all
dividends and distributions. The defensive nature of the high-coupon bonds in
the portfolio, including prerefunded bonds (bonds to be redeemed on optional
call dates from proceeds held in escrow), moderated the decline in the Fund's
net asset value during a year of sharply rising interest rates. The $2.0
million Denver Airport bond position was sold in March when it appeared that
the airport opening would experience additional delays. The sale of these
bonds prior to credit downgrades by the rating agencies and further price
erosion helped preserve asset value.
- - ---------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields
of 25 selected municipal revenue bonds with 30-year maturities. Ratings of
these bonds range from Aa1 to Baa1, as measured by Moody's and AA+ to A-, as
measured by Standard & Poor's.
<PAGE>
<PAGE>
PORTFOLIO STRUCTURE
At the close of the fiscal period, the portfolio held $63 million in
long-term municipal bonds, which were diversified among 13 specific municipal
sectors and 39 credits. Prerefunded bond holdings comprised 22 percent of net
assets. The three largest sectors were mortgage revenue --single family,
electric and hospital revenue bonds, representing 45 percent of net assets.
The average maturity and call protection of the Fund's long-term holdings was
20 years and 6 years, respectively. Bonds subject to the alternative minimum
tax (AMT) comprised approximately 32 percent of net assets. The credit
quality ratings of the long-term portfolio are summarized below:
<TABLE>
<CAPTION>
MOODY'S OR STANDARD & POOR'S CREDIT RATINGS MUNICIPAL BONDS
- - -------------------------------------------- ---------------
<S> <C>
Aaa or AAA ................................ 27%
Aa or AA .................................. 17
A or A .................................... 21
Baa or BBB ................................ 20
Not rated ................................. 15
</TABLE>
LOOKING AHEAD
The overall direction of interest rates will primarily be determined by
the strength of the economy, the trend of inflation and the Federal Reserve
Board's response. These conditions may continue to move interest rates
higher. Investor demand for municipal securities should be sustained by
significant bond maturities and calls. Although the Fund may sell and/or
experience redemptions of older, high-coupon bonds, we will seek to sustain a
high level of tax-free income.
We would like to remind you that the Trustees have approved a procedure
whereby the Fund, when appropriate, may repurchase shares in the open market
or in privately negotiated transactions at a price not above market value or
net asset value, whichever is lower at the time of purchase.
We appreciate your ongoing support of Municipal Income Trust III and look
forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1994
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - ----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.0%)
GENERAL OBLIGATION (6.4%)
$1,050 Moulton Niguel Water District, California, 1993 Refg (MBIA
Insured) ........................................................ 5.00% 9/ 1/19 $874,671
2,400 District of Columbia, Ser 1990 B (FSA Insured) (Prerefunded) .... 7.50 6/ 1/10 2,733,792
500 New York City, New York, Ser 1989 C .............................. 6.50 8/15/08 505,315
- - ----------- ------------
3,950 4,113,778
- - ----------- ------------
EDUCATIONAL FACILITIES REVENUE (4.6%)
1,440 California Public Works Board, University of California 1993
Ser A ........................................................... 5.50 6/ 1/21 1,255,046
1,000 Massachusetts Health & Educational Facilities Authority, Boston
College Ser K ................................................... 5.25 6/ 1/18 886,000
750 West Virginia School Building Authority, Cap Impr Ser 1991 A .... 6.75 7/ 1/15 769,448
- - ----------- ------------
3,190 2,910,494
- - ----------- ------------
ELECTRIC REVENUE (12.4%)
1,000 Sacramento Municipal Utility District, California, Refg Ser I
(MBIA Insured) .................................................. 5.75 1/ 1/15 953,840
4,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C ............... 4.56 2/ 1/06 3,559,640
3,000 Washington Public Power Supply System, Proj #2 Refg Ser 1990 C
(Prerefunded) ................................................... 7.625 7/ 1/10 3,443,610
- - ----------- ------------
8,000 7,957,090
- - ----------- ------------
HOSPITAL REVENUE (10.9%)
925 Illinois Health Facilities Authority, Glen Oaks Medical Center
Inc Refg 1990 Ser D ............................................. 9.50 11/15/15 1,070,697
1,625 Minneapolis & St Paul Housing & Redevelopment Authority, Health
One Oblig Grp 1990 Ser B (Prerefunded) .......................... 8.00 8/15/14 1,895,758
2,000 Comanche County Hospital Authority, Oklahoma, Ser 1989
(Prerefunded) ................................................... 8.05 7/ 1/16 2,299,660
1,100 Montgomery County Higher Education & Health Authority,
Pennsylvania, Frankford Hospital Ser 1986 ....................... 7.875 1/ 1/19 1,154,702
500 Washington County Municipal Authority, Pennsylvania, Shadyside
Hospital Ser 1985 C Subser C - 1D (AMBAC Insured) (Prerefunded).. 7.45 12/15/18 572,405
- - ----------- ------------
6,150 6,993,222
- - ----------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (7.9%)
3,000 Cleveland, Ohio, Continental Airlines Inc Ser 1990 (AMT) ........ 9.00 12/ 1/19 3,032,490
2,005 Alliance Airport Authority, Texas, American Airlines Inc
Ser 1990 (AMT) .................................................. 7.50 12/ 1/29 1,992,308
- - ----------- ------------
5,005 5,024,798
- - ----------- ------------
MORTGAGE REVENUE--MULTI-FAMILY (1.6%)
1,000 Massachusetts Housing Finance Agency, Rental 1994 Ser A
- - ----------- (AMT) (AMBAC Insured) ........................................... 6.60 7/ 1/14 1,012,980
</TABLE>
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1994 (continued)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - ----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
MORTGAGE REVENUE--SINGLE FAMILY (21.2%)
$ 2,000 Alaska Housing Finance Corporation, 1993 1st Ser ................. 5.90% 12/ 1/33 $1,797,820
495 Colorado Housing Finance Authority, Ser A-2 (AMT) ................ 8.25 8/ 1/20 508,776
295 Hawaii Housing Finance & Development Corporation, Purchase
Ser 1989 A (AMT) ................................................ 7.80 7/ 1/29 299,617
1,975 Idaho Housing Agency, Ser 1988 D-2 (AMT) ......................... 8.25 1/ 1/20 2,289,144
3,967 Saint Tammany Public Trust Financing Authority, Louisiana,
Refg Ser 1990 B ................................................. 7.25 7/25/11 4,068,018
1,000 Maine Housing Authority, Purchase Ser 1990 A-4 (AMT) ............ 6.40 11/15/23 965,350
Massachusetts Housing Finance Agency, Residential
1,500 Ser 1989 A (AMT) ................................................ 8.10 8/ 1/09 1,537,185
500 Ser 1989 A (AMT) ................................................ 8.20 8/ 1/27 516,125
Utah Housing Finance Agency,
625 Ser 1991 Issue A-2 (AMT) ........................................ 7.75 1/ 1/23 663,019
885 Ser 1991 Issue B-2 (AMT) ........................................ 7.75 1/ 1/23 926,241
- - ----------- ------------
13,242 13,571,295
- - ----------- ------------
NURSING & HEALTH RELATED FACILITIES REVENUE (10.2%)
Vista, California, Long-Term Care Foundation of America
2,073 Ser 1994 A COPs (a) ............................................. 8.50 1/ 1/20 1,658,573
290 Ser 1994 B COPs (a) ............................................. 0.00 1/ 1/20 2,895
1,000 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990 .....................10.25 1/ 1/20 1,064,420
2,000 Lexington-Fayette Urban County Government, Kentucky,
AHF/Kentucky-Iowa Inc Ser 1990 ..................................10.25 1/ 1/20 2,128,840
1,750 Metropolitan Government of Nashville & Davidson County Health &
Educational Facilities Board, Tennessee, Metro- politan
Nashville Teachers' Nursing Facility Inc Ser 1989 (b) ..........10.25 10/ 1/19 1,653,750
- - ----------- ------------
7,113 6,508,478
- - ----------- ------------
PUBLIC FACILITIES REVENUE (4.9%)
2,750 Florence County Public Facilities Corporation, South Carolina,
Law Enforcement & Civic Center 1990 COPs (AMBAC Insured)
(Prerefunded) ................................................... 7.60 3/ 1/14 3,115,338
- - ----------- ------------
RESOURCE RECOVERY REVENUE (4.1%)
2,500 Cambria County Industrial Development Authority,
Pennsylvania, Cambria Cogen Co Ser 1989 F-2 (AMT) ............... 7.75 9/ 1/19 2,648,075
- - ----------- ------------
TRANSPORTATION REVENUE (7.6%)
900 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC Insured) ...... 6.00 1/ 1/21 871,011
2,435 Southwestern Illinois Development Authority, Tri-City Regional
Port District Ser 1989 (AMT) (a) ................................ 7.90 7/ 1/14 2,698,613
1,500 Puerto Rico Highway & Transportation Authority, Refg Ser 1993 X . 5.25 7/ 1/21 1,290,270
- - ----------- ------------
4,835 4,859,894
- - ----------- ------------
WATER & SEWER REVENUE (3.9%)
1,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA Insured) ........... 6.375 1/ 1/24 1,003,690
1,500 Massachusetts Water Resources Authority, 1993 Ser C ............. 5.25 12/ 1/20 1,275,165
</TABLE>
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1994 (continued)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- - ----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
$ 1,090 Erie County Water Authority, New York, 4th Resolution Refg Ser
1992 (AMBAC Insured) ............................................ 0.00% 12/ 1/17 $ 202,402
- - ----------- ------------
3,590 2,481,257
- - ----------- ------------
OTHER REVENUE (2.3%)
1,000 Pasadena, California, Refg & Cap 1992 COPs ....................... 5.75 1/ 1/13 944,730
500 Illinois Development Finance Authority, Church Road Partnership #2
Ser 1989 (AMT) .................................................. 7.875 9/ 1/14 527,285
- - ----------- ------------
1,500 1,472,015
- - ----------- ------------
62,825 TOTAL MUNICIPAL BONDS (IDENTIFIED COST $60,110,900) .................................. 62,668,714
- - ----------- ------------
SHORT-TERM MUNICIPAL OBLIGATION (0.6%)
400 Massachusetts, Dedicated Income Tax Ser 1990 E (Tender 9/1/94)
(IDENTIFIED COST $400,000) ...................................... 2.90* 12/ 1/97 400,000
- - ----------- ------------
$63,225 TOTAL INVESTMENTS (IDENTIFIED COST $60,510,900) (C) ....................... 98.6% 63,068,714
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................ 1.4 942,584
----- ------------
NET ASSETS ................................................................ 100.0% $64,011,298
===== ============
</TABLE>
- - ---------------
AMT Alternative Minimum Tax
COPs Certificates of Participation
* Variable or floating rate security. Coupon rate shown reflects current
rate.
(a) Resale is restricted to qualified institutional investors.
(b) Bond in default.
(c) The aggregate cost for federal income tax purposes is $60,510,900; the
aggregate gross unrealized appreciation is $3,786,517 and the aggregate
gross unrealized depreciation is $1,228,703, resulting in net
unrealized appreciation of $2,557,814.
See Notes to Financial Statements
<TABLE>
<CAPTION>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
August 31, 1994
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska .............. 2.8% Illinois ....... 8.3% New York ...... 1.1% Texas .......... 8.6%
California .......... 8.9 Iowa ........... 1.7 Ohio .......... 4.7 Utah ........... 2.5
Colorado ............ 0.8 Kentucky ....... 3.3 Oklahoma ...... 3.6 Washington ..... 5.4
District of Columbia 4.3 Louisiana ...... 6.4 Pennsylvania . 6.8 West Virginia . 1.2
Georgia ............. 1.4 Maine .......... 1.5 Puerto Rico .. 2.0
Hawaii .............. 0.5 Massachusetts . 8.8 South Carolina .4.8
Idaho ............... 3.6 Minnesota ...... 3.0 Tennessee ..... 2.6
------
Total .......... 98.6%
======
</TABLE>
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
FINANCIAL STATEMENTS
- - -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1994
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $60,510,900) (Note 1) .. $63,068,714
Cash ...................................... 73,953
Interest receivable ....................... 974,967
Deferred organizational expenses (Note 1) 838
Prepaid expenses and other assets ........ 9,977
-------------
TOTAL ASSETS ............................ 64,128,449
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased
(Note 5) ................................ 36,120
Investment advisory fee (Note 2) ........ 23,186
Administration fee (Note 3) .............. 14,491
Accrued expenses (Note 4) ................. 43,354
-------------
TOTAL LIABILITIES ....................... 117,151
-------------
NET ASSETS:
Paid-in-capital ........................... 60,446,361
Net unrealized appreciation on investments 2,557,814
Accumulated undistributed net investment
income ................................... 530,226
Accumulated undistributed net realized
gain on investments ...................... 476,897
-------------
NET ASSETS .............................. $64,011,298
=============
NET ASSET VALUE PER SHARE, 6,522,686
shares outstanding (unlimited shares
authorized of $.01 par value) ............ $9.81
=====
</TABLE>
STATEMENT OF OPERATIONS
For the year ended August 31, 1994
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME ......................... $ 4,549,548
-------------
EXPENSES
Investment advisory fee (Note 2) ...... 263,709
Administration fee (Note 3) ............ 164,818
Professional fees ...................... 67,968
Shareholder reports and notices ....... 30,100
Transfer agent fees and expenses ...... 29,409
Trustees' fees and expenses ............ 21,756
Registration fees ...................... 16,176
Organizational expenses (Note 1) ...... 8,994
Other .................................. 9,492
-------------
TOTAL EXPENSES ........................ 612,422
-------------
NET INVESTMENT INCOME ................ 3,937,126
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (Note 1):
Net realized gain on investments ....... 476,511
Net change in unrealized appreciation on
investments ............................ (2,159,202)
-------------
NET LOSS ON INVESTMENTS ............... (1,682,691)
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........... $ 2,254,435
=============
</TABLE>
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED AUGUST 31, ENDED AUGUST 31,
1994 1993
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income .................................................. $ 3,937,126 $ 4,158,772
Net realized gain on investments ....................................... 476,511 172,880
Net change in unrealized appreciation on investments ................... (2,159,202) 1,548,682
--------------- ---------------
Net increase in net assets resulting from operations .................. 2,254,435 5,880,334
--------------- ---------------
Dividends and distributions to shareholders from:
Net investment income .................................................. (3,732,458) (3,979,228)
Net realized gain on investments ....................................... (172,434) (273,905)
--------------- ---------------
Total dividends and distributions ..................................... (3,904,892) (4,253,133)
--------------- ---------------
Net decrease from transactions in shares of beneficial interest (Note 5) (989,071) -0-
--------------- ---------------
Total increase (decrease) ............................................. (2,639,528) 1,627,201
NET ASSETS:
Beginning of period ..................................................... 66,650,826 65,023,625
--------------- ---------------
END OF PERIOD (including undistributed net investment income of $530,226
and $325,558, respectively) ............................................ $64,011,298 $66,650,826
=============== ===============
</TABLE>
See Notes to Financial Statements
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS
- - -----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Municipal Income Trust III (the
"Fund") is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Fund was
organized as a Massachusetts business trust on June 26, 1989 and commenced
operations on October 5, 1989.
The following is a summary of significant accounting policies:
A. Valuation of Investments--Portfolio securities are valued for the
Fund by an outside independent pricing service approved by the Trustees.
The pricing service has informed the Fund that in valuing the Fund's
portfolio securities, it uses both a computerized grid matrix of
tax-exempt securities and evaluations by its staff, in each case based
on information concerning market transactions and quotations from
dealers which reflect the bid side of the market each day. The Fund's
portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to
be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be
relevant.
B. Accounting for Investments--Security transactions are accounted for
on the trade date (date the order to buy or sell is executed). Realized
gains and losses on security transactions are determined on the
identified cost method. Premiums and discounts on securities purchased
are amortized over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. Federal Income Tax Status--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision
is required.
D. Dividends and Distributions to Shareholders--The Fund records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either
considered 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 tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent
they exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
E. Organizational Expenses--The Fund's Investment Adviser paid the
organizational expenses of the Fund in the amount of $45,000. The Fund
reimbursed the Investment Adviser for such expenses which are being
amortized by the straight-line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory
Agreement with Dean Witter InterCapital Inc. (the "Investment Adviser"), the
Fund pays its Investment Adviser an advisory fee,
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
- - -----------------------------------------------------------------------------
calculated weekly and payable monthly, by applying the following annual rates
to the Fund's average weekly net assets: 0.40% to the portion of the Fund's
average weekly net assets not exceeding $250 million and 0.30% to the portion
of the Fund's average weekly net assets exceeding $250 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT--Through December 31, 1993, pursuant to an
Administration Agreement with Dean Witter InterCapital Inc. (the "Former
Administrator"), the Fund paid an administration fee, calculated weekly and
payable monthly, by applying the following annual rates to the Fund's average
weekly net assets: 0.25% to the portion of the Fund's average weekly net
assets not exceeding $250 million and 0.20% to the portion of the Fund's
average weekly net assets exceeding $250 million but not exceeding $500
million; 0.167% to the portion of the Fund's average weekly net assets
exceeding $500 million but not exceeding $750 million; and 0.133% to the
portion of the Fund's average weekly net assets exceeding $750 million. On
January 1, 1994, the Administration Agreement between the Former
Administrator and the Fund was terminated and a new Administration Agreement
has been entered into between Dean Witter Services Company Inc. (the
"Administrator"), a wholly-owned subsidiary of the Former Administrator, and
the Fund. The nature and scope of the services being provided to the Fund or
any fees being paid by the Fund under the new Agreement are identical to
those of the previous Agreement.
Under the terms of the Administration Agreement, the Administrator
maintains certain of the Fund's books and records and furnishes, at its own
expense, office space, facilities, equipment, clerical, bookkeeping and
certain legal services and pays the salaries of all personnel, including
officers of the Fund who are employees of the Administrator. The
Administrator also bears the cost of telephone services, heat, light, power
and other utilities provided to the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1994 aggregated
$14,420,512 and $14,287,120, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser, is the
Fund's transfer agent. At August 31, 1994, the Fund had transfer agent fees
and expenses payable of approximately $4,000.
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
- - -----------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE OF IN EXCESS OF
SHARES SHARES PAR VALUE
----------- -------------- --------------
<S> <C> <C> <C>
Balance, August 31, 1992 and August 31, 1993 6,632,086 $66,321 $61,369,111
Treasury shares purchased and retired
(weighted average discount 7.82%)* ......... (109,400) (1,094) (987,977)
----------- -------------- --------------
Balance, August 31, 1994 .................... 6,522,686 $65,227 $60,381,134
=========== ============== ==============
</TABLE>
- - ---------------
* The Trustees have voted to retire the shares repurchased.
6. DIVIDENDS--The Fund has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT PER RECORD PAYABLE
DATE SHARE DATE DATE
- - ------------------ ----------- ----------------- ------------------
<S> <C> <C> <C>
August 30, 1994 $0.045 September 9, 1994 September 23, 1994
September 27, 1994 $0.045 October 7, 1994 October 21, 1994
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA--(unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED*
----------------------------------------------------------------------------
8/31/94 5/31/94 2/28/94 11/30/93
---------------- ------------------- ------------------ -----------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
------- ------- --------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income ... $996 $0.15 $1,216 $0.18 $1,137 $0.17 $1,200 $0.18
Net investment income ..... 843 0.13 1,065 0.16 994 0.15 1,035 0.16
Net realized and unrealized
gain (loss) on investments 237 0.04 (2,170) (0.32) (300) (0.05) 551 0.08
<CAPTION>
QUARTERS ENDED*
---------------------------------------------------------------------------
8/31/93 5/31/93 2/28/93 11/30/92
------------------ ----------------- ----------------- -----------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------- -------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income ... $1,232 $0.19 $1,170 $0.17 $1,196 $0.18 $1,201 $0.18
Net investment income ..... 1,074 0.16 1,019 0.16 1,031 0.15 1,035 0.16
Net realized and unrealized
gain (loss) on investments (160) (0.03) 268 0.04 1,119 0.17 495 0.08
</TABLE>
- - ---------------
* Totals expressed in thousands of dollars.
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
FINANCIAL HIGHLIGHTS
- - -----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 5, 1989*
FOR THE YEAR ENDED AUGUST 31, THROUGH
-------------------------------------- AUGUST 31,
1994** 1993 1992 1991 1990
--------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $10.05 $9.80 $9.60 $9.32 $9.30
--------- -------- -------- -------- ----------------
Net investment income ..................... 0.60 0.63 0.62 0.68 0.57
Net realized and unrealized gain (loss) on
investments .............................. (0.25) 0.26 0.28 0.30 0.05
--------- -------- -------- -------- ----------------
Total from investment operations .......... 0.35 0.89 0.90 0.98 0.62
--------- -------- -------- -------- ----------------
Less dividends, distributions and other
charges:
Dividends from net investment income .... (0.56) (0.60) (0.64) (0.66) (0.55)
Distributions from net realized gain on
investments .............................. (.03) (0.04) (0.06) (0.04) -0-
Offering costs charged against capital .. -0- -0- -0- -0- (0.05)
--------- -------- -------- -------- ----------------
Total dividends, distributions and other
charges .................................. (0.59) (0.64) (0.70) (0.70) (0.60)
--------- -------- -------- -------- ----------------
Net asset value, end of period ............ $9.81 $10.05 $9.80 $9.60 $9.32
========= ======== ======== ======== ================
Market value, end of period ............... $9.00 $10.25 $9.75 $9.625 $8.625
========= ======== ======== ======== ================
TOTAL INVESTMENT RETURN+ .................. (6.60%) 12.27% 8.73% 20.38% (8.37%)(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $64,011 $66,651 $65,024 $63,565 $62,147
Ratio of expenses to average net assets . 0.93% 0.98% 1.00% 1.02% 1.10% (2)
Ratio of net investment income to average
net assets .............................. 5.99% 6.37% 6.38% 7.20% 6.76% (2)
Portfolio turnover rate .................. 23% 2% 8% 40% 150%
</TABLE>
- - ---------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total investment return is based upon the current market value on the
last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Fund's
dividend reinvestment plan. Total investment return does not reflect
sales charges or brokerage commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
1994 FEDERAL TAX NOTICE (unaudited)
During the year ended August 31, 1994, the Fund paid to shareholders $.565
per share from net investment income. All of the Fund's dividends from net
investment income were exempt interest dividends, excludable from gross
income for Federal income tax purposes. For the year ended August 31, 1994,
the Fund paid to shareholders $.026 per share from long-term capital gains.
<PAGE>
<PAGE>
MUNICIPAL INCOME TRUST III
REPORT OF INDEPENDENT ACCOUNTANTS
- - -----------------------------------------------------------------------------
To the Shareholders and Trustees of Municipal Income Trust III
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Municipal Income
Trust III (the "Fund") at August 31, 1994, the results of its operations for
the year then ended, the changes in its net assets 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 5, 1989
(commencement of operations) through August 31, 1990, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which 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 owned at
August 31, 1994 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 11, 1994
<PAGE>
<PAGE>
TRUSTEES
- - -----------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
- - -----------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- - -----------------------------
Dean Witter Trust Company
Harborside Financial Center--Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
- - -----------------------------
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
- - -----------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
- - -----------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
INCOME
TRUST III
ANNUAL REPORT
AUGUST 31, 1994
