<PAGE> 1
MUNICIPAL INCOME TRUST III Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1995
DEAR SHAREHOLDER:
MARKET SUMMARY
Bond market conditions have improved steadily since late last year. Progressive
tightening of Federal Reserve Board monetary policy over the 12 months through
February 1995 led to slower economic growth and caused bonds to rally. The move
toward lower long-term interest rates this year reversed 1994's prevailing trend
of rapidly rising rates.
Long-term municipal bond yields, as tracked by The Bond Buyer Revenue Bond
Index*, moved from a high of 7.37 percent in November 1994 to 6.26 percent at
the end of August 1995. This 111 basis point decline in yield corresponded to a
9 percent price increase for callable municipal bonds with 30-year maturities.
Tax-exempt bonds outperformed U.S. Treasury bonds in early 1995. The ratio of
the Revenue Bond Index yield to the 30-year U.S. Treasury bond yield moved from
a high of 89 percent in December 1994 to 84 percent by the end of February 1995.
A declining ratio means that municipal bond prices have been stronger than U.S.
Treasury prices.
Tax reform proposals advocating the flat-tax concept were introduced in Congress
in the wake of the mid-term elections. The risk of eventual passage of
comprehensive changes in the tax code caused municipals to adjust in relation to
Treasuries. By the end of August, the ratio of the Revenue Bond Index yield to
the 30-year U.S. Treasury bond yield had risen to 94 percent.
The pace of new-issue underwriting over the first eight months of 1995 declined
25 percent compared to the same period last year. With bond maturities and calls
for redemption estimated to exceed new issues coming to market in 1995, the
outstanding supply of municipal securities is expected to decline for the second
year in a row. The resulting demand for tax-free securities has tended to
counteract the uncertainty created by flat tax proposals.
- ---------------------
* The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of
25 selected municipal revenue bonds with 30-year maturities. Credit ratings
of these bonds range from Aa1 to Baa1 by Moody's and AA+ to A- by Standard &
Poor's.
<PAGE> 2
MUNICIPAL INCOME TRUST III
LETTER TO THE SHAREHOLDERS, continued
PERFORMANCE
The net asset value (NAV) of Municipal Income Trust III (TFC) rose from $9.81 to
$9.91 per share during the fiscal year ended August 31, 1995. Based on this NAV
change and reinvestment of tax-free dividends totaling $0.54 per share and
capital gains distributions totaling $0.0736 per share, the Fund's total NAV
return was 8.07 percent. Over the same period, the Fund's market price on the
New York Stock Exchange declined marginally from $9.00 to $8.875 per share.
Based on this stock price change and reinvestment of dividends and
distributions, the Fund's total market return for the year was 5.71 percent. On
August 31, 1995 the Fund had undistributed net investment income of $0.145 per
share, an increase of $0.06 per share during the fiscal year. This dividend
reserve or "cushion" has been accumulated to better sustain future dividends.
The Fund's market price began the period trading at an eight percent discount to
NAV and closed at a 10 percent discount. At the end of the fiscal year, the Fund
had net assets in excess of $63 million.
PORTFOLIO STRUCTURE
Long-term investments were diversified among 13 municipal sectors and 40
separate credits. The three largest municipal sectors -- mortgage revenue single
family, refunded and transportation -- represented 44 percent of net assets. The
average maturity and call protection of the Fund's long-term holdings was 18 and
8 years, respectively. Bonds rated lower than "A" were reduced from 35 to 23
percent of the portfolio. The credit quality ratings of the Fund's long-term
portfolio are summarized below:
<TABLE>
<CAPTION>
Moody's or Standard & Poor's Ratings Percent
-------------------------------------------------------------
<S> <C>
Aaa or AAA........................................ 40%
Aa or AA.......................................... 19
A or A............................................ 18
Baa or BBB........................................ 15
Not Rated......................................... 8
--
100%
--
</TABLE>
LOOKING AHEAD
The slower pace of economic growth in 1995 and the Federal Reserve Board's
previous interest rate moves have improved bond market expectations. The
decreasing supply of new issues combined with significant maturities and calls
for redemption should continue to be positive for the municipal market. However,
tax-reduction proposals may continue to receive publicity and cloud the outlook
for tax-exempt bonds. With long-term municipals yielding more than 90 percent of
the yield on Treasuries, the market has begun the process of discounting the
risk that a flat tax will eventually become law.
<PAGE> 3
MUNICIPAL INCOME TRUST III
LETTER TO THE SHAREHOLDERS, continued
Among the factors that will determine the Fund's future dividend level are
changes in market yields and the sale or redemption of older, higher-yielding
portfolio holdings. Even at present market levels, the Fund cannot replace the
tax-free income attributable to many investments purchased more than five years
ago.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchase in the open market. This method helps to
support the market value of the Fund's shares. In addition, 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. During the fiscal year ended August 31, 1995, TFC
purchased 112,900 shares of common stock at a weighted average market discount
of 10.71 percent.
We appreciate your ongoing support of Municipal Income Trust III and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ C. FIUMEFREDDO
- -------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (95.9%)
General Obligation (9.4%)
$ 1,050 Moulton-Niguel Water District, California, Refg 1993 (MBIA)............... 5.00 % 09/01/19 $ 918,551
1,500 Massachusetts, 1995 Ser B (AMBAC)......................................... 5.50 07/01/14 1,428,915
New York City, New York,
1,000 1995 Ser D (MBIA)........................................................ 6.20 02/01/07 1,090,630
500 1989 Ser C............................................................... 6.50 08/15/08 503,385
1,000 New York State, Refg Ser 1995 B........................................... 5.70 08/15/10 1,011,190
1,000 Washington, Ser A......................................................... 5.80 09/01/08 1,030,370
------- ---------
6,050 5,983,041
------- ---------
Educational Facilities Revenue (4.1%)
1,000 Massachusetts Health & Educational Facilities Authority, Boston College
Ser K..................................................................... 5.25 06/01/18 913,240
900 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 A (MBIA)........................................................ 5.90 05/15/15 901,404
750 West Virginia School Building Authority, Cap Impr Ser 1991 A.............. 6.75 07/01/15 782,753
------- ---------
2,650 2,597,397
------- ---------
Electric Revenue (7.4%)
1,000 Sacramento Municipal Utility District, California, Refg Ser I (MBIA)...... 5.75 01/01/15 980,480
4,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C........................ 4.70 02/01/06 3,733,760
------- ---------
5,000 4,714,240
------- ---------
Hospital Revenue (1.7%)
905 Illinois Health Facilities Authority, Glen Oaks Medical Center Inc
Refg 1990 Ser D.......................................................... 9.50 11/15/15 1,060,198
------- ---------
Industrial Development/Pollution Control Revenue (7.3%)
500 Illinois Development Finance Authority, Church Road Partnership II
Ser 1989 (AMT)........................................................... 7.875 09/01/14 530,705
2,000 New York State Energy Research & Development Authority,
New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA)............... 6.15 07/01/26 2,013,160
2,005 Alliance Airport Authority, Texas, American Airlines Inc Ser 1990 (AMT)... 7.50 12/01/29 2,104,388
------- ---------
4,505 4,648,253
------- ---------
Mortgage Revenue - Multi-Family (1.6%)
1,000 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT) (AMBAC)..... 6.60 07/01/14 1,027,120
------- ---------
Mortgage Revenue - Single Family (17.5%)
2,000 Alaska Housing Finance Corporation, 1993 1st Ser.......................... 5.90 12/01/33 1,890,100
445 Colorado Housing Finance Authority, Ser A-2 (AMT)......................... 8.25 08/01/20 473,093
255 Hawaii Housing Finance & Development Corporation, Purchase Ser 1989 A
(AMT) .................................................................. 7.80 07/01/29 267,572
1,665 Idaho Housing Agency, Ser 1988 D-2 (AMT).................................. 8.25 01/01/20 1,828,353
3,351 Saint Tammany Public Trust Financing Authority, Louisiana, Refg Ser 1990
B......................................................................... 7.25 07/25/11 3,577,184
1,000 Maine Housing Authority, Purchase Ser 1990 A-4 (AMT)...................... 6.40 11/15/23 990,850
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Massachusetts Housing Finance Agency, Residential
$ 495 Ser 1989 A (AMT)......................................................... 8.10 % 08/01/09 $ 526,482
165 Ser 1989 A (AMT)......................................................... 8.20 08/01/27 175,465
Utah Housing Finance Agency,
535 Ser 1991 Issue A-2 (AMT)................................................. 7.75 01/01/23 570,770
795 Ser 1991 Issue B-2 (AMT)................................................. 7.75 01/01/23 844,044
------- ---------
10,706 11,143,913
------- ---------
Nursing & Health Related Facilities Revenue (7.4%)
Vista, California, Long-Term Care Foundation of America
2,048 Ser 1994 A COPs (a)...................................................... 8.50 01/01/20 1,637,792
252 Ser 1994 B COPs (a)...................................................... 0.00 01/01/20 2,523
1,000 Marion, Iowa, AHF/Kentucky-Iowa Inc Ser 1990.............................. 10.25 01/01/20 1,015,590
2,000 Lexington-Fayette Urban County Government, Kentucky, AHF/Kentucky-Iowa Inc
Ser 1990................................................................. 10.25 01/01/20 2,031,180
------- ---------
5,300 4,687,085
------- ---------
Public Facilities Revenue (1.50%)
1,000 Pasadena, California, Refg & Cap 1992 COPs................................ 5.75 01/01/13 952,500
------- ---------
Resource Recovery Revenue (4.2%)
2,500 Cambria County Industrial Development Authority, Pennsylvania, Cambria
Cogen Co Ser 1989 F-2 (AMT).............................................. 7.75 09/01/19 2,663,550
------- ---------
Transportation Facilities Revenue (10.3%)
2,380 Southwestern Development Authority, Illinois, Tri-City Regional Port
District
Ser 1989 A (AMT) (a)..................................................... 7.90 07/01/14 2,604,720
2,000 Kentucky Turnpike Authority, Economic Development Road Revitalization Refg
Ser 1995 (AMBAC)......................................................... 5.625 07/01/15 1,949,660
2,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA) (WI)............ 6.125 11/15/25 1,990,220
------- ---------
6,380 6,544,600
------- ---------
Water & Sewer Revenue (6.9%)
1,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA)............................. 6.375 01/01/24 1,023,800
500 Massachusetts Water Pollution Abatement Trust, Pool Loan Ser 2............ 5.70 02/01/12 496,810
1,500 Massachusetts Water Resources Authority, 1993 Ser C....................... 5.25 12/01/20 1,340,205
1,090 Erie County Water Authority, New York, 4th Resolution Refg Ser 1992
(AMBAC)................................................................... 0.00 12/01/17 220,027
1,300 Ohio Water Development Authority, Water Pollution Control Ser 1995
(MBIA).................................................................... 5.75 12/01/17 1,282,190
------- ---------
5,390 4,363,032
------- ---------
Refunded (16.6%)
2,400 District of Columbia, Ser 1990 B (FSA).................................... 7.50 06/01/10 2,746,776
1,100 Montgomery County Higher Education & Health Authority, Pennsylvania,
Frankford Hospital Ser 1986.............................................. 7.875 01/01/19 1,174,679
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL INCOME TRUST III
PORTFOLIO OF INVESTMENTS August 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,750 Florence County Public Facilities Corporation, South Carolina, Law
Enforcement & Civic Center 1990 COPs (AMBAC)............................. 7.60 % 03/01/14 $ 3,119,902
3,000 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990 C.... 7.625 07/01/10 3,477,870
------- ---------
9,250 10,519,227
------- ---------
60,636 TOTAL MUNICIPAL BONDS (Identified Cost $58,023,387)............................................... 60,904,156
------- ---------
SHORT-TERM MUNICIPAL OBLIGATIONS (5.8%)
1,700 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993 (Demand
09/01/95)................................................................. 3.30* 03/01/22 1,700,000
2,000 New York City Municipal Water Finance Authority, New York, 1993 Ser C
(FGIC) (Demand 09/01/95)................................................. 3.35* 06/15/22 2,000,000
------- ---------
3,700 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $3,700,000)............................... 3,700,000
-------
---------
$64,336 TOTAL INVESTMENTS (Identified Cost $61,723,387) (b)................................. 101.7% 64,604,156
-------
-------
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS...................................... (1.7) (1,089,138)
---- ---------
NET ASSETS.......................................................................... 100.0% $63,515,018
---- ---------
---- ---------
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
* Current coupon of variable rate security.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes is $61,723,387; the
aggregate gross unrealized appreciation is $3,354,903 and the aggregate
gross unrealized depreciation is $474,134, resulting in net unrealized
appreciation of $2,880,769.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percentage of Net Assets
August 31, 1995
<TABLE>
<S> <C>
Alaska............ 3.0%
California........ 7.1
Colorado.......... 0.8
District of
Columbia......... 4.3
Hawaii............ 0.4
Idaho............. 2.9
Illinois.......... 8.2
Iowa.............. 1.6
Kentucky.......... 6.3%
Louisiana......... 8.3
Maine............. 1.6
Massachusetts..... 9.3
New Jersey........ 1.4
New York.......... 10.8
Ohio.............. 2.0
Pennsylvania...... 6.0
South Carolina.... 4.9%
Texas............. 12.3
Utah.............. 2.2
Washington........ 7.1
West Virginia..... 1.2
----
Total............. 101.7%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL INCOME TRUST III
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
ASSETS:
Investments in securities, at value
(identified cost $61,723,387)......................................... $64,604,156
Cash................................................................... 8,263
Interest receivable.................................................... 916,356
Prepaid expenses and other assets...................................... 7,151
---------
TOTAL ASSETS....................................................... 65,535,926
---------
LIABILITIES:
Payable for:
Investments purchased.............................................. 1,935,313
Investment advisory fee............................................ 23,443
Administration fee................................................. 14,652
Accrued expenses and other payables.................................... 47,500
---------
TOTAL LIABILITIES.................................................. 2,020,908
---------
NET ASSETS:
Paid-in-capital........................................................ 59,491,314
Net unrealized appreciation............................................ 2,880,769
Accumulated undistributed net investment income........................ 928,751
Accumulated undistributed net realized gain............................ 214,184
---------
NET ASSETS......................................................... $63,515,018
---------
---------
NET ASSET VALUE PER SHARE, 6,409,786 shares outstanding
(unlimited shares authorized of $.01 par value)....................... $9.91
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL INCOME TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended August 31, 1995
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $4,468,831
----------
EXPENSES
Investment advisory fee................................................. 249,483
Administration fee...................................................... 155,927
Professional fees....................................................... 75,318
Shareholder reports and notices......................................... 31,115
Transfer agent fees and expenses........................................ 26,682
Trustees' fees and expenses............................................. 20,792
Registration fees....................................................... 16,539
Organizational expenses................................................. 838
Other................................................................... 9,635
----------
TOTAL EXPENSES...................................................... 586,329
----------
NET INVESTMENT INCOME............................................... 3,882,502
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain....................................................... 214,184
Net change in unrealized appreciation................................... 322,955
----------
NET GAIN............................................................ 537,139
----------
NET INCREASE............................................................ $4,419,641
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL INCOME TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1995 1994
---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 3,882,502 $ 3,937,126
Net realized gain................................ 214,184 476,511
Net change in unrealized appreciation............ 322,955 (2,159,202)
----------- -----------
NET INCREASE................................. 4,419,641 2,254,435
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income............................ (3,484,365) (3,732,458)
Net realized gain................................ (476,509) (172,434)
----------- -----------
TOTAL........................................ (3,960,874) (3,904,892)
----------- -----------
Net decrease from transactions in shares of
beneficial interest............................. (955,047) (989,071)
----------- -----------
TOTAL DECREASE............................... (496,280) (2,639,528)
NET ASSETS:
Beginning of period.............................. 64,011,298 66,650,826
----------- -----------
END OF PERIOD
(Including undistributed net investment
income of $928,751 and $530,612,
respectively)................................ $63,515,018 $64,011,298
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS August 31, 1995
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 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. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
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 by the identified cost method.
Discounts and premiums on securities purchased are amortized over the life of
the respective securities. Interest income is accrued daily.
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.
<PAGE> 11
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS August 31, 1995, continued
E. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Adviser") paid and was reimbursed by the Fund organizational expenses in the
amount of $45,000, which were fully amortized as of October 5, 1994.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays its Investment
Adviser an advisory fee, 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
Pursuant to an Administration Agreement with Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays 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; 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.
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, 1995 aggregated
$12,961,565 and $15,289,704, respectively.
<PAGE> 12
MUNICIPAL INCOME TRUST III
NOTES TO FINANCIAL STATEMENTS August 31, 1995, continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At August 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $5,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE IN EXCESS OF
SHARES OF SHARES PAR VALUE
--------- ---------- ------------
<S> <C> <C> <C>
Balance, 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
Treasury shares purchased and retired (weighted average discount 10.71%)*........ (112,900) (1,129) (953,918)
--------- ------- -----------
Balance, August 31, 1995......................................................... 6,409,786 $ 64,098 $59,427,216
========= ======= ===========
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. DIVIDENDS
The Fund has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------- --------- ------------------ -------------------
<S> <C> <C> <C>
August 29, 1995 $ 0.045 September 8, 1995 September 22, 1995
September 27, 1995 $ 0.045 October 6, 1995 October 20, 1995
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
8/31/95 5/31/95 2/28/95** 11/30/94**
----------------- ----------------- ----------------- ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income.................. $1,173 $ 0.18 $1,142 $ 0.18 $1,040 $ 0.16 $ 1,114 $ 0.17
Net investment income.................... 1,027 0.16 985 0.15 901 0.14 970 0.15
Net realized and unrealized gain
(loss).................................. (179) (0.03) 981 0.15 3,080 0.48 (3,345) (0.49)
</TABLE>
<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).................................. 237 0.04 (2,170) (0.32) (300) (0.05) 551 0.08
</TABLE>
- ---------------------
* Amounts in thousands.
** Restated.
<PAGE> 13
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 YEAR ENDED AUGUST 31*
---------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period.................................................. $ 9.81 $10.05 $ 9.80 $ 9.60 $ 9.32
----- ----- ----- ----- -----
Net investment income................................................. 0.60 0.60 0.63 0.62 0.68
Net realized and unrealized gain (loss)............................... 0.11 (0.25) 0.26 0.28 0.30
----- ----- ----- ----- -----
Total from investment operations...................................... 0.71 0.35 0.89 0.90 0.98
----- ----- ----- ----- -----
Less dividends and distributions from:
Net investment income................................................ (0.54) (0.56) (0.60) (0.64) (0.66)
Net realized gain.................................................... (0.07) (0.03) (0.04) (0.06) (0.04)
----- ----- ----- ----- -----
Total dividends and distributions..................................... (0.61) (0.59) (0.64) (0.70) (0.70)
----- ----- ----- ----- -----
Net asset value, end of period........................................ $ 9.91 $ 9.81 $10.05 $ 9.80 $ 9.60
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Market value, end of period........................................... $8.875 $ 9.00 $10.25 $ 9.75 $9.625
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL INVESTMENT RETURN+.............................................. 5.71% (6.60)% 12.27% 8.73% 20.38%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.94% 0.93% 0.98% 1.00% 1.02%
Net investment income................................................. 6.24% 5.99% 6.37% 6.38% 7.20%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $63,515 $64,011 $66,651 $65,024 $63,565
Portfolio turnover rate............................................... 22% 23% 2% 8% 40%
</TABLE>
- ---------------------
* 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 prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect sales charges or brokerage
commissions.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
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, 1995, 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 five years in the period
then ended, 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 at August
31, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 10, 1995
--------------------------------------------------------------------
1995 FEDERAL TAX NOTICE (unaudited)
During the year ended August 31, 1995, the Fund paid to
shareholders $0.54 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, 1995, the
Fund paid to shareholders $0.06 per share from long-term
capital gains.
<PAGE> 15
MUNICIPAL INCOME TRUST III
RESULTS OF ANNUAL MEETING (unaudited)
On June 22, 1995, an annual meeting of shareholders of the Fund was held for the
purpose of voting on three separate matters, the results of which were as
follows:
ELECTION OF TRUSTEES:
Jack F. Bennett
<TABLE>
<CAPTION>
Vote: No. of Shares
- -------------------------------------------------------------------------- -------------
<S> <C>
For.................................................................. 5,016,695
Withheld............................................................. 159,491
</TABLE>
Michael Bozic
<TABLE>
<CAPTION>
Vote: No. of Shares
- -------------------------------------------------------------------------- -------------
<S> <C>
For.................................................................. 5,012,637
Withheld............................................................. 163,549
</TABLE>
Charles A. Fiumefreddo
<TABLE>
<CAPTION>
Vote: No. of Shares
- -------------------------------------------------------------------------- -------------
<S> <C>
For.................................................................. 5,013,348
Withheld............................................................. 162,838
</TABLE>
INVESTMENT ADVISORY AGREEMENT:
<TABLE>
<CAPTION>
Vote: No. of Shares
- -------------------------------------------------------------------------- -------------
<S> <C>
For.................................................................. 4,850,487
Against.............................................................. 100,038
Abstain.............................................................. 225,661
</TABLE>
RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
Vote: No. of Shares
- -------------------------------------------------------------------------- -------------
<S> <C>
For.................................................................. 4,957,856
Against.............................................................. 52,693
Abstain.............................................................. 165,637
</TABLE>
<PAGE> 16
TRUSTEES
- ------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
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, 1995
